Stress Testing Banks' Credit Risk Using Mixture Vector Autoregressive Models
AbstractThis paper estimates macroeconomic credit risk of banks¡¦ loan portfolio based on a class of mixture vector autoregressive models. Such class of models can differentiate distributions of default rates and macroeconomic conditions for different market situations and can capture their dynamics evolving over time, including the feedback effect from an increase in fragility back to the macroeconomy. These extensions can facilitate the evaluation of credit risks of loan portfolio based on different credit loss distributions.
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Bibliographic InfoPaper provided by Hong Kong Monetary Authority in its series Working Papers with number 0813.
Length: 23 pages
Date of creation: Oct 2008
Date of revision:
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More information through EDIRC
Stress test; Hong Kong Banking; Credit risk; Mixture autoregressive models; Macroeconomic shocks; Value-at-risk.;
Find related papers by JEL classification:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-03 (All new papers)
- NEP-BAN-2009-01-03 (Banking)
- NEP-MAC-2009-01-03 (Macroeconomics)
- NEP-RMG-2009-01-03 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Berchtold, Andre, 2003. "Mixture transition distribution (MTD) modeling of heteroscedastic time series," Computational Statistics & Data Analysis, Elsevier, vol. 41(3-4), pages 399-411, January.
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CeNDEF Workshop Papers, January 2001
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- Markku Lanne & Pentti Saikkonen, 2003. "Modeling the U.S. Short-Term Interest Rate by Mixture Autoregressive Processes," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 1(1), pages 96-125.
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Research Discussion Papers
21/2002, Bank of Finland.
- Armando MÃ©ndez Morales & Jose Giancarlo Gasha, 2004. "Identifying Threshold Effects in Credit Risk Stress Testing," IMF Working Papers 04/150, International Monetary Fund.
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- Alfred Wong & Tom Fong, 2013. "Gauging the Safehavenness of Currencies," Working Papers 132013, Hong Kong Institute for Monetary Research.
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