Default Estimation and Expert Information: All Likely Dataset Analysis and Robust Validation
Default is a rare event, even in segments in the midrange of a bank's portfolio. Inference about default rates is essential for risk management and for compliance with the requirements of Basel II. Most commercial loans are in the middle-risk categories and are to unrated companies. Expert information is crucial in inference about defaults. A Bayesian approach is proposed and illustrated using a prior distribution assessed from an industry expert. The method of All Likely Datasets, based on sufficient statistics and expert information, is used to characterize likely datasets for analysis. A check of robustness is illustrated with an epsilon-- mixture of priors.
|Date of creation:||Jul 2007|
|Date of revision:|
|Contact details of provider:|| Postal: 402 Uris Hall, Ithaca, NY 14853|
Phone: (607) 255-9901
Fax: (607) 255-2818
Web page: http://www.arts.cornell.edu/econ/CAE/workingpapers.html
More information through EDIRC
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.:
- Nickell, Pamela & Perraudin, William & Varotto, Simone, 2000.
"Stability of rating transitions,"
Journal of Banking & Finance,
Elsevier, vol. 24(1-2), pages 203-227, January.
- Umesh Gavasakar, 1988. "A Comparison of Two Elicitation Methods for a Prior Distribution for a Binomial Parameter," Management Science, INFORMS, vol. 34(6), pages 784-790, June.
- Garthwaite, Paul H. & Kadane, Joseph B. & O'Hagan, Anthony, 2005. "Statistical Methods for Eliciting Probability Distributions," Journal of the American Statistical Association, American Statistical Association, vol. 100, pages 680-701, June.
When requesting a correction, please mention this item's handle: RePEc:ecl:corcae:07-11. 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: ()
If references are entirely missing, you can add them using this form.