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Forecasting and stress testing credit card default using dynamic models

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  • Bellotti, Tony
  • Crook, Jonathan

Abstract

We present discrete time survival models of borrower default for credit cards that include behavioural data about credit card holders and macroeconomic conditions across the credit card lifetime. We find that dynamic models which include these behavioural and macroeconomic variables provide statistically significant improvements in model fit, which translate into better forecasts of default at both account and portfolio levels when applied to an out-of-sample data set. By simulating extreme economic conditions, we show how these models can be used to stress test credit card portfolios.

Suggested Citation

  • Bellotti, Tony & Crook, Jonathan, 2013. "Forecasting and stress testing credit card default using dynamic models," International Journal of Forecasting, Elsevier, vol. 29(4), pages 563-574.
    • Handle: RePEc:eee:intfor:v:29:y:2013:i:4:p:563-574
    DOI: 10.1016/j.ijforecast.2013.04.003
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    References listed on IDEAS

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