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Multi-period PD Calibration Framework for LDP Portfolios

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  • Denis Surzhko

Abstract

The intention of this paper is to propose PD calibration framework for low default portfolios (LDP) that allows producing smooth non-zero PD estimates for any given time horizon within the length of economic cycle. The approach produces PDs that are consistent with two main anchors – PIT and TTC PD estimates and are subject to smooth, monotonic transition between those two anchors. In practise, proposed framework could be applied to risk-based pricing of LDP portfolio deals. Moreover, according to the author opinion, the approach is generally compliant with the new IFRS 9 requirements regarding PD term-structure calibration for provisioning.

Suggested Citation

  • Denis Surzhko, 2015. "Multi-period PD Calibration Framework for LDP Portfolios," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 5(5), pages 1-3.
    • Handle: RePEc:spt:apfiba:v:5:y:2015:i:5:f:5_5_3
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