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Probability of Default: A Modern Calibration Approach

In: Mathematical and Statistical Methods for Actuarial Sciences and Finance

Author

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  • Stefano Bonini

    (University of Rome “Tor Vergata”)

  • Giuliana Caivano

    (University of Rome “Tor Vergata”)

Abstract

An extensive academic and practitioner’s literature exists on rating models development with well-structured statistical methods, however these models do not estimate PDs aligned with the economic scenario, then it is necessary a calibration. During the last years the effect of not well calibrated models has been observed on the credit market: actually they show a high level of procyclicality that let them loss market credibility and banking usability. The aim of this paper is to show a modern structured calibration approach, based on Bayesian techniques, taking into consideration specific economic factors. The calibration approach has been applied on real data of a Corporate portfolio of a top tier European Bank and a new calibration test, adjusted by the economic cycle, has been performed.

Suggested Citation

  • Stefano Bonini & Giuliana Caivano, 2014. "Probability of Default: A Modern Calibration Approach," Springer Books, in: Cira Perna & Marilena Sibillo (ed.), Mathematical and Statistical Methods for Actuarial Sciences and Finance, edition 127, pages 41-44, Springer.
    • Handle: RePEc:spr:sprchp:978-3-319-05014-0_9
    DOI: 10.1007/978-3-319-05014-0_9
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