Credit Risk and the Finnish Economy
The significance of credit risk models has increased with the introduction of the New Basel Accord, known as Basel II. The aim of this study is to examine default rate modeling. This paper follows two possible approaches to macro credit risk modeling, empirical models and a latent factor model based on Merton. We employ data over the time period from 1988 to 2003 for the Finnish economy, including time series of bankruptcy, numbers of firms and industry-specific data. Linear vector autoregressive models are used in the case of a dynamic empirical model. We examine how significant macroeconomic indicators determine the default rate in the whole economy and in industry-specific sectors. Since these models cannot provide microeconomic foundations, we employ a model with one latent factor, although multi-factor models are also considered. This estimation helps us to understand the relationships between credit risk and macroeconomic indicators. Both models can be used for default rate prediction or stres s testing by central authorities.
Volume (Year): 1 (2007)
Issue (Month): 3 (November)
|Contact details of provider:|| Postal: Opletalova 26, CZ-110 00 Prague|
Phone: +420 2 222112330
Fax: +420 2 22112304
Web page: http://ies.fsv.cuni.cz/
More information through EDIRC
|Order Information:|| Web: http://auco.cuni.cz/ Email: |
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.:
- André Lucas & Siem Jan Koopman, 2005.
"Business and default cycles for credit risk,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 20(2), pages 311-323.
- Gordy, Michael B., 2003.
"A risk-factor model foundation for ratings-based bank capital rules,"
Journal of Financial Intermediation,
Elsevier, vol. 12(3), pages 199-232, July.
- Michael B. Gordy, 2002. "A risk-factor model foundation for ratings-based bank capital rules," Finance and Economics Discussion Series 2002-55, Board of Governors of the Federal Reserve System (U.S.).
- Edward I. Altman & Brooks Brady & Andrea Resti & Andrea Sironi, 2005. "The Link between Default and Recovery Rates: Theory, Empirical Evidence, and Implications," The Journal of Business, University of Chicago Press, vol. 78(6), pages 2203-2228, November.
- Linda Allen & Anthony Saunders, 2003. "A survey of cyclical effects in credit risk measurement model," BIS Working Papers 126, Bank for International Settlements.
- Gertjan W. Vlieghe, 2001. "Indicators of fragility in the UK corporate sector," Bank of England working papers 146, Bank of England.
- Merton, Robert C, 1974.
"On the Pricing of Corporate Debt: The Risk Structure of Interest Rates,"
Journal of Finance,
American Finance Association, vol. 29(2), pages 449-70, May.
- Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Giuseppe Marotta & Chiara Pederzoli & Costanza Torricelli, 2005. "Forward-looking estimation of default probabilities with Italian data," Heterogeneity and monetary policy 0504, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.
- Hamerle, Alfred & Liebig, Thilo & Scheule, Harald, 2004. "Forecasting Credit Portfolio Risk," Discussion Paper Series 2: Banking and Financial Studies 2004,01, Deutsche Bundesbank, Research Centre.
When requesting a correction, please mention this item's handle: RePEc:fau:aucocz:au2007_254. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lenka Stastna)
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.