Need to Be Sure What We're Modeling
I just want to make sure that I understand what we're modeling here. So, our dependent variable is the recovery rate. This is what we're predicting. Once we obtain our prediction, we would then subtract that from 1 to arrive at our LGD. Is this correct?
- Example: LGD = 1 - recovery rate
- In our Case: LGD = 1 - predicted recovery rate