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An urn-based nonparametric modeling of the dependence between PD and LGD with an application to mortgages
Cheng, Dan; Cirillo, Pasquale - In: Risks : open access journal 7 (2019) 3, pp. 76
We propose an alternative approach to the modeling of the positive dependence between the probability of default and the loss given default in a portfolio of exposures, using a bivariate urn process. The model combines the power of Bayesian nonparametrics and statistical learning, allowing for...
Persistent link: https://www.econbiz.de/10012127587
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Aggregation of incidence and intensity risk variables to achieve reconciliation
Hunt, Clive; Taplin, Ross - In: Risks : open access journal 7 (2019) 4/107, pp. 1-14
product of exposure at default (EAD), probability of default (PD), and loss given default (LGD) of the loan. Simple weighted … (by EAD) means of PD and LGD are intuitive summaries however they do not satisfy a reconciliation property whereby their …, especially when trying to ascertain whether changes in EAD, PD, or LGD are responsible for a change in EL. We propose means for …
Persistent link: https://www.econbiz.de/10012127917
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Bank stress testing : a stochastic simulation framework to assess banks' financial fragility
Montesi, Giuseppe; Papiro, Giovanni - In: Risks : open access journal 6 (2018) 3, pp. 1-54
We present a stochastic simulation forecasting model for stress testing that is aimed at assessing banks’ capital adequacy, financial fragility, and probability of default. The paper provides a theoretical presentation of the methodology and the essential features of the forecasting model on...
Persistent link: https://www.econbiz.de/10011890804
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The determinants of market-implied recovery rates
François, Pascal - In: Risks : open access journal 7 (2019) 2/57, pp. 1-15
In the presence of recovery risk, the recovery rate is a random variable whose risk-neutral expectation can be inferred from the prices of defaultable instruments. I extract market-implied recovery rates from the term structures of credit default swap spreads for a sample of 497 United States...
Persistent link: https://www.econbiz.de/10012019023
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Adapting the default weighted survival analysis modelling approach to model IFRS 9 LGD
Joubert, Morne; Verster, Tanja; Raubenheimer, Helgard; … - In: Risks : open access journal 9 (2021) 6, pp. 1-17
Survival analysis is one of the techniques that could be used to predict loss given default (LGD) for regulatory … capital (Basel) purposes. When using survival analysis to model LGD, a proposed methodology is the default weighted survival … analysis (DWSA) method. This paper is aimed at adapting the DWSA method (used to model Basel LGD) to estimate the LGD for …
Persistent link: https://www.econbiz.de/10012597134
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A multi-state approach to modelling intermediate events and multiple mortgage loan outcomes
Chamboko, Richard; Bravo, Jorge Miguel Ventura - In: Risks : open access journal 8 (2020) 2/64, pp. 1-28
current, delinquency, default, prepayment, repurchase, short sale and foreclosure on mortgage loans. The approach allows for … the modelling of the progression of borrowers from one state to another to fully understand the risks of a cohort of … decision-making on granting loans and the design of debt relief and mortgage modification policies. …
Persistent link: https://www.econbiz.de/10012293007
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The impact of risk management in credit rating agencies
Seetharaman, A.; Sahu, Vikas Kumar; Saravanan, A. S.; … - In: Risks : open access journal 5 (2017) 4, pp. 1-16
independent variables were tested statistically using structural equation modelling (SEM). The results indicated that market risk …
Persistent link: https://www.econbiz.de/10011783056
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Recent regulation in credit risk management : a statistical framework
Ewanchuk, Logan; Frei, Christoph - In: Risks : open access journal 7 (2019) 2/40, pp. 1-19
A recently introduced accounting standard, namely the International Financial Reporting Standard 9, requires banks to build provisions based on forward-looking expected loss models. When there is a significant increase in credit risk of a loan, additional provisions must be charged to the income...
Persistent link: https://www.econbiz.de/10012019298
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Multivariate spectral backtests of forecast distributions under unknown dependencies
Balter, Janine; McNeil, Alexander J. - In: Risks : open access journal 12 (2024) 1, pp. 1-15
Under the revised market risk framework of the Basel Committee on Banking Supervision, the model validation regime for internal models now requires that models capture the tail risk in profit-and-loss (P&L) distributions at the trading desk level. We develop multi-desk backtests, which...
Persistent link: https://www.econbiz.de/10014480976
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Optional defaultable markets
Abdelghani, Mohamed N.; Melʹnikov, Aleksandr V. - In: Risks : open access journal 5 (2017) 4, pp. 1-21
The paper deals with defaultable markets, one of the main research areas of mathematical finance. It proposes a new approach to the theory of such markets using techniques from the calculus of optional stochastic processes on unusual probability spaces, which was not presented before. The paper...
Persistent link: https://www.econbiz.de/10011783347