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Estimation of Default Probabilities and Default Correlations
2005This paper provides estimators for the default probability and default correlation for a portfolio of obligors. Analogously to rating classes, homogeneous groups of obligors are considered. The estimations are made in a general Bernoulli mixture model with a minimum of assumptions and in a single-factor model.
Stefan Huschens +2 more
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Estimation of Default Probabilities Part 3: Stochastic Default Probabilities: Credit Risk+
SSRN Electronic Journal, 2003The article provides a detailed analysis of the approach to estimate firms' default probabilities as it is proposed in the Credit Risk+ portfolio model. It is shown that systematic estimation errors occur in the methodology that also carry over to credit portfolio risk management.
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Dynamics of probabilities of default
Probabilities of default (PDs) of loans are of central importance for financial stability. We analyze the PDs, reported quarterly by German financial institutions to Deutsche Bundesbank. The development of PDs is modelled as an AR process of PD changes and an initial PD.Bednarek, Peter, Franke, Günter
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Calibration of the default probability model
European Journal of Operational Research, 2008Abstract In this paper, we study the calibration problem for the Merton–Vasicek default probability model [Robert Merton, On the pricing of corporate debt: the risk structure of interest rate, Journal of Finance 29 (1974) 449–470]. We derive conditions that guarantee existence and uniqueness of the solution.
Alexander Kreinin, Ahmed Nagi
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2016
Validators should ensure that all model components and the related outputs have been thoroughly tested. Let us recall that the first of the BCBS (2005) validation principles is that “Validation is fundamentally about assessing the predictive ability of a bank’s risk estimates and the use of ratings in the credit process.” We will follow Tasche (2008 ...
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Validators should ensure that all model components and the related outputs have been thoroughly tested. Let us recall that the first of the BCBS (2005) validation principles is that “Validation is fundamentally about assessing the predictive ability of a bank’s risk estimates and the use of ratings in the credit process.” We will follow Tasche (2008 ...
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Default probabilities of privately held firms
Journal of Banking & Finance, 2018Abstract We estimate the term structures of the default probabilities for private firms using data consisting of 1759 default events from 29,894 firms between 1999 and 2014. Each firm’s default likelihood is characterized by a forward intensity model employing macro risk factors and firm-specific attributes.
Jin-Chuan Duan +3 more
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The Term Structure of Default Probabilities
SSRN Electronic Journal, 2020Accounting standards require that financial institutions must measure default risk with respect to the full maturity of a financial instrument. This requires forecasting of future default probabilities. The forecast of future default probabilities concerns two aspects: forecasting macroeconomic scenarios and future average (with respect to the macro ...
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Non-parametric Estimators for the Probability of Default
2004The estimation of the probability of default based on information on the individual customer or the company is an important part of credit screening, i.e., judging the credit standing. It is essential for the establishment of a rating or for measuring credit risk to estimate the probability that a company will end in financial difficulties within a ...
Jürgen Franke +2 more
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SSRN Electronic Journal, 2003
The article provides a detailed analysis of the approach to estimate firms' default probabilities as it is proposed in the Credit Portfolio View model. It is shown that multiple systematic estimation errors and conceptual weaknesses occur in the methodology that prevent the results from being a credible assessment of a firm's default probability and in
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The article provides a detailed analysis of the approach to estimate firms' default probabilities as it is proposed in the Credit Portfolio View model. It is shown that multiple systematic estimation errors and conceptual weaknesses occur in the methodology that prevent the results from being a credible assessment of a firm's default probability and in
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Conditional Probabilty of Default Methodolgy [PDF]
, 2006 This paper presents the Conditional Probability of Default (CoPoD) methodology for modelling the probabilites of loan defaults (PoD) by small and medium enterprises (SMEs) and unlisted firms as functions of identifiable macroeconomic and financial variables.
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