Forecasting probabilities of default and loss rates given default in the presence of selection

Publication Type:
Journal Article
Citation:
Journal of the Operational Research Society, 2014, 65 (3), pp. 393 - 407
Issue Date:
2014-03-01
Metrics:
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This paper offers a joint estimation approach for forecasting probabilities of default and loss rates given default in the presence of selection. The approach accommodates fixed and random risk factors. An empirical analysis identifies bond ratings, borrower characteristics and macroeconomic information as important risk factors. A portfolio-level analysis finds evidence that common risk measurement approaches may underestimate bank capital by up to 17% relative to the presented model. © 2014 Operational Research Society Ltd. All rights reserved.
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