The aggregation of individual risks into total risk using a weighting variable multiplied by two ratio variables representing incidence and intensity is an important task for risk professionals. For example, expected loss (EL) of a loan is the product of exposure at default (EAD), probability of...

This paper proposes a novel system-wide multi-state framework to model state occupations and the transitions among 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...

In banking practice, quantifying the probability of default is one of the most important elements of the lending decision, therefore it is also vital from a financial stability perspective. The aim of our research was to model the probability of default as precisely as possible in the case of...