Skip navigation

Modelling the distribution of credit losses with observable and latent factors

Thumbnail
View
860,18 kB
Authors
Issue Date
2007
Physical description
50 p. : fórmulas, gráf., tab.
Abstract
This paper develops a flexible and computationally efficient model to estimate the credit loss distribution of the loans in a banking system. We consider a sectorial structure, where default frequencies and the total number of loans are allowed to depend on macroeconomic conditions as well as on unobservable credit risk factors, which can capture contagion effects between sectors. In addition, we also model the distributions of the Exposure at Default and the Loss Given Default. We apply our model to the Spanish credit market, where we find that sectorial default frequencies are affected by a persistent latent factor. Finally, we also identify the potentially riskier sectors and perform stress tests
Publish on
Documentos de trabajo / Banco de España, 0709
Subjects
Appears in Collections:


loading