Business cycle effects on Portfolio Credit Risk: scenario generation through Dynamic Factor analysis
In this paper, we focus on measuring the risk associated to a bank loan portfolio. In particular, we depart from the standard one factor model representation of portfolio credit risk. In particular, we consider an hetrogeneous portfolio, and we account for stochastic dependent recoveries. We also examine the influence of either one systemic shock (interpreted as the state of the business cycle) or two systemic shocks (interpreted as demand and supply innovations) on portfolio credit risk. The identification and estimation of the common shocks is obtained by fitting a Dynamic Factor model to a large number of macro credit drivers. The scenarios are obtained by employing Montecarlo stochastic simulation.
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.:
- Til Schuermann & Björn-Jakob Treutler & Scott M. Weiner & M. Hashem Pesaran, 2003.
"Macroeconomic Dynamics and Credit Risk: A Global Perspective,"
CESifo Working Paper Series
995, CESifo Group Munich.
- Pesaran, M. Hashem & Schuermann, Til & Treutler, Bjorn-Jakob & Weiner, Scott M., 2006. "Macroeconomic Dynamics and Credit Risk: A Global Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1211-1261, August.
- M. Hashem Pesaran & Til Schuermann & Björn-Jakob Treutler & Scott M. Weiner & April, . "Macroeconomic Dynamics and Credit Risk: A Global Perspective," Center for Financial Institutions Working Papers 03-13, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Pesaran, M.H. & Schuermann, T. & Treutler, B-J. & Weiner, S.M., 2003. "Macroeconomic Dynamics and Credit Risk: A Global Perspective," Cambridge Working Papers in Economics 0330, Faculty of Economics, University of Cambridge.
- Mario Forni & Marc Hallin & Lucrezia Reichlin & Marco Lippi, 2000.
"The generalised dynamic factor model: identification and estimation,"
ULB Institutional Repository
2013/10143, ULB -- Universite Libre de Bruxelles.
- Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2000. "The Generalized Dynamic-Factor Model: Identification And Estimation," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 540-554, November.
- Forni, Mario & Hallin, Marc & Lippi, Marco & Reichlin, Lucrezia, 1999. "The Generalized Dynamic Factor Model: Identification and Estimation," CEPR Discussion Papers 2338, C.E.P.R. Discussion Papers.
- 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.
- Nickell, Pamela & Perraudin, William & Varotto, Simone, 2000.
"Stability of rating transitions,"
Journal of Banking & Finance,
Elsevier, vol. 24(1-2), pages 203-227, January.
- Forni, Mario & Lippi, Marco & Reichlin, Lucrezia, 2003. "Opening the Black Box: Structural Factor Models versus Structural VARs," CEPR Discussion Papers 4133, C.E.P.R. Discussion Papers.
- Uhlig, Harald, 2005.
"What are the effects of monetary policy on output? Results from an agnostic identification procedure,"
Journal of Monetary Economics,
Elsevier, vol. 52(2), pages 381-419, March.
- Tom Doan, . "UHLIGFUNCS: RATS procedure to compute criteria for Uhlig sign-restricted shocks," Statistical Software Components RTS00217, Boston College Department of Economics.
- Tom Doan, . "RATS programs to replicate Uhlig's VAR identification technique," Statistical Software Components RTZ00163, Boston College Department of Economics.
- Uhlig, Harald, 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," CEPR Discussion Papers 2137, C.E.P.R. Discussion Papers.
- Andrew G Haldane & Glenn Hoggarth & Victoria Saporta, 2001. "Assessing financial system stability, efficiency and structure at the Bank of England," BIS Papers chapters, in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 138-159 Bank for International Settlements.
- Domenico Giannone & Lucrezia Reichlin & Luca Sala, 2006.
"VARs, common factors and the empirical validation of equilibrium business cycle models,"
ULB Institutional Repository
2013/10127, ULB -- Universite Libre de Bruxelles.
- Giannone, Domenico & Reichlin, Lucrezia & Sala, Luca, 2006. "VARs, common factors and the empirical validation of equilibrium business cycle models," Journal of Econometrics, Elsevier, vol. 132(1), pages 257-279, May.
- Giannone, Domenico & Reichlin, Lucrezia & Sala, Luca, 2002. "VARs, Common Factors and the Empirical Validation of Equilibrium Business Cycle Models," CEPR Discussion Papers 3701, C.E.P.R. Discussion Papers.
- Domenica Giannone & Lucrezia Reichlin & Luca Sala, 2004. "VARs, Common Factors and the Empirical Validation of Equilibrium Business Cycle Models," Working Papers 258, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0502010. 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: (EconWPA)
If references are entirely missing, you can add them using this form.