Modelling Downturn Loss Given Default
Basel II requires that the internal estimates of Loss Given Default (LGD) reflect economic downturn conditions, thus modelling the "downturn LGD". In this work we suggest a methodology to estimate the downturn LGD distribution. Under the assumption that LGD is a mixture of an expansion and a recession distribution, an accurate parametric model for LGD is proposed and its parameters are estimated by the EM algorithm. Finally, we apply the proposed model to empirical data on Italian bank loans.
|Date of creation:||23 Nov 2012|
|Contact details of provider:|| Postal: Arts Annexe, Belfield, Dublin 4|
Phone: +353 1 7164615
Fax: +353 1 7161108
Web page: http://www.ucd.ie/geary/
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.:
- Renault, Olivier & Scaillet, Olivier, 2004.
"On the way to recovery: A nonparametric bias free estimation of recovery rate densities,"
Journal of Banking & Finance,
Elsevier, vol. 28(12), pages 2915-2931, December.
- Olivier RENAULT & Olivier SCAILLET, 2003. "On the Way to Recovery: A Nonparametric Bias Free Estimation of Recovery Rate Densities," FAME Research Paper Series rp83, International Center for Financial Asset Management and Engineering.
- Filardo, Andrew J, 1994. "Business-Cycle Phases and Their Transitional Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 299-308, July.
- Andrew J. Filardo, 1993. "Business cycle phases and their transitional dynamics," Research Working Paper 93-14, Federal Reserve Bank of Kansas City.
When requesting a correction, please mention this item's handle: RePEc:ucd:wpaper:201226. 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: (Geary Tech)
If references are entirely missing, you can add them using this form.