This paper identifies the main bank specific determinants of bank failure during the financial crisis in Colombia using duration analysis. Using partial likelihood estimation, it shows that the process of failure of financial institutions during that period can be explained by differences in...

A new first order asymptotic theory for heteroskedasticity-autocorrelation (HAC) robust tests based on nonparametric covariance matrix estimators is developed. The bandwidth of the covariance matrix estimator is modeled as a fixed proportion of the sample size. This leads to a distribution...

The problem in default probability estimation for low-default portfolios is that there is little relevant historical data information. No amount of data processing can fix this problem. More information is required. Incorporating expert opinion formally is an attractive option.

Default is a rare event, even in segments in the midrange of a bank's portfolio. Inference about default rates is essential for risk management and for compliance with the requirements of Basel II. Most commercial loans are in the middle-risk categories and are to unrated companies. Expert...

We show that the asymptotic mean of the log-likelihood ratio in a misspecified model is a differential geometric quantity that is related to the exponential curvature of Efron (1978), Amari (1982), and the preferred point geometry of Critchley et al. (1993, 1994). The mean is invariant with...

Stochastically ordered random variables with given marginal distributions are combined into a joint distribution preserving the ordering and the marginals using a maximum entropy formulation. A closed-form expression is obtained. An application is in default estimation for different portfolio...

Dependence among defaults both across assets and over time has proven to be an important characteristic of financial risk. A Bayesian approach to default rate estimation is proposed and illustrated using a prior distributions assessed from an experienced industry expert. Two extensions of the...

A Bayesian approach to default rate estimation is proposed and illustrated using a prior distribution assessed from an experienced industry expert. The principle advantage of the Bayesian approach is the potential for coherent incorporation of expert information--crucial when data are scarce or...

Incorporation of expert information in inference or decision settings is often important, especially in cases where data are unavailable, costly or unreliable. One approach is to elicit prior quantiles from an expert and then to fit these to a statistical distribution and proceed according to...