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Stress Testing Banks' Credit Risk Using Mixture Vector Autoregressive Models

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Author Info
Tom Pak-wing Fong (Research Department, Hong Kong Monetary Authority)
Chun-shan Wong (Department of Finance, The Chinese University of Hong Kong)
Abstract

This 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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File URL: http://www.info.gov.hk/hkma/eng/research/working/pdf/HKMAWP13_08_full.pdf
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Publisher Info
Paper provided by Hong Kong Monetary Authority in its series Working Papers with number 0813.

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Length: 23 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:hkg:wpaper:0813

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Related research
Keywords: 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: General - - - Statistical Simulation Methods
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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References listed on IDEAS
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.:
  1. Lanne , Markku, 2002. "Nonlinear dynamics of interest rate and inflation," Research Discussion Papers 21/2002, Bank of Finland. [Downloadable!]
    Other versions:
  2. Jose Giancarlo Gasha & Armando Méndez Morales, 2004. "Identifying Threshold Effects in Credit Risk Stress Testing," IMF Working Papers 04/150, International Monetary Fund. [Downloadable!]
  3. Markku Lanne & Pentti Saikkonen, 2003. "Modeling the U.S. Short-Term Interest Rate by Mixture Autoregressive Processes," Journal of Financial Econometrics, Oxford University Press, vol. 1(1), pages 96-125.
    Other versions:
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