IDEAS home Printed from https://ideas.repec.org/a/aza/rmfi00/y2023v17i1p89-105.html
   My bibliography  Save this article

A generalised latent Poisson factor modelling approach for default correlations in credit portfolios

Author

Listed:
  • Saidane, Mohamed

    (Associate Professor, College of Business and Economics, Qassim University, Kingdom, Saudi Arabia)

Abstract

Default risk is one of the major concerns for lending institutions and banking regulators. This paper focuses on the analysis of default data, using a new approach based on generalised latent Poisson factor models. In this case, the correlation structure of the default events is driven by a small number of common latent factors. Conditional to these factors, the defaults become independent and each default sequence is fitted to a generalised linear model with Poisson response and log-link function. This model provides a flexible framework for the computation of the value-at-risk and the expected shortfall of a credit portfolio. The practical implementation of the proposed local Fisher scoring estimation algorithm is illustrated by a Monte Carlo simulation study. Then, a real scenario, with default data taken from a large database provided by Standard & Poor's, is used to analyse the empirical behaviours of the different risk measures. The achieved results show promising performance.

Suggested Citation

  • Saidane, Mohamed, 2023. "A generalised latent Poisson factor modelling approach for default correlations in credit portfolios," Journal of Risk Management in Financial Institutions, Henry Stewart Publications, vol. 17(1), pages 89-105, December.
    • Handle: RePEc:aza:rmfi00:y:2023:v:17:i:1:p:89-105
    as

    Download full text from publisher

    File URL: https://hstalks.com/article/8215/download/
    Download Restriction: Requires a paid subscription for full access.
    File URL: https://hstalks.com/article/8215/
    Download Restriction: Requires a paid subscription for full access.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    default correlation; factor analysis; generalised linear models; expectation-maximisation algorithm; credit value-at-risk; expected shortfall;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aza:rmfi00:y:2023:v:17:i:1:p:89-105. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Henry Stewart Talks (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.