Modelling the distribution of credit losses with observable and latent factors
Abstract
This paper proposes a dynamic model to estimate the credit loss distribution of the aggregate portfolio of loans granted in a banking system. We consider a sectoral approach distinguishing between corporates and households. The evolution of their default frequencies and the size of the loans portfolio are expressed as functions of macroeconomic conditions as well as unobservable credit risk factors, which capture contagion effects between sectors. In addition, we model the distributions of the Exposures at Default and the Losses Given Default. We apply our framework to the Spanish banking system, where we find that sectoral default frequencies are not only affected by economic cycles but also by a persistent latent factor. Finally, we identify the riskier sectors, perform stress tests and compare the relative risk of small and large institutions.Download Info
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic Info
Article provided by Elsevier in its journal Journal of Empirical Finance.
Volume (Year): 16 (2009)
Issue (Month): 2 (March)
Pages: 235-253
Download reference. The following formats are available: HTML
(with abstract),
plain text
(with abstract),
BibTeX,
RIS (EndNote, RefMan, ProCite),
ReDIF
Handle: RePEc:eee:empfin:v:16:y:2009:i:2:p:235-253
Contact details of provider:
Web page: http://www.elsevier.com/locate/jempfin
For corrections or technical questions regarding this item, or to correct its listing, contact: (Jeroen Loos).
Related research
Keywords: Credit risk Probability of default Loss distribution Stress test Contagion Latent factors;References
No references listed on IDEASYou can help add them by filling out this form.
Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Kauko, Karlo, 2010. "The feasibility of through-the-cycle ratings," Research Discussion Papers 14/2010, Bank of Finland.
- Stefan Kerbl & Michael Sigmund, 2011. "What Drives Aggregate Credit Risk?," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 22, pages 72-87, December.
Lists
This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.Statistics
Access and download statisticsCorrections
When requesting a correction, please mention this item's handle: RePEc:eee:empfin:v:16:y:2009:i:2:p:235-253For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jeroen Loos).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.