We determine the magnitude and nature of systematic default risk using 1971{2009) default data from Moody's. We … disentangle systematic risk factors due to business cycle effects, common default dynamics (frailty), and industry …-specific dynamics (including contagion). To quantify the contribution of each of these factors to default rate volatility we introduce a …

-linear and time-varying default dependence. We demonstrate how to apply a conditional law of large numbers in this setting to …

the functional form linking systematic credit risk drivers to default probabilities. Examples include the normal based …

. Using rating transition and default data of U.S. corporates from Standard and Poor’s over the period 1980—2005 we directly … which macro-economic fundamentals explain default and rating dynamics. …