Krueger, Steffen and Oehme, Toni and Roesch, Daniel and Scheule, Harald (2018) A copula sample selection model for predicting multi-year LGDs and Lifetime Expected Losses. JOURNAL OF EMPIRICAL FINANCE, 47. pp. 246-262. ISSN 0927-5398, 1879-1727
Full text not available from this repository. (Request a copy)Abstract
Recent credit risk literature has proposed (i) sample selection models for dependencies between the one-year Probability of Default (PD) and Loss Given Default (LGD), and (ii) multi-year approaches which are limited to default risk. This paper provides a model for the simultaneous prediction of continuous default times and multi-year LGDs. These measures are paramount to predict term structures of LGDs and Lifetime Expected Losses for the revised loan loss provisioning framework of IFRS 9 and US GAAP (current expected credit loss, CECL). The model includes a variation of copulas and corrects for sample selection bias of LGDs, which are only observed given a default event. We find empirical evidence that bonds which default closer to origination tend to generate higher LGDs. The model enables more precise estimates of Lifetime Expected Losses and prevents a severe underestimation in contrast to more restricted credit risk models. (C) 2018 Elsevier B.V. All rights reserved.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | DEFAULT PREDICTION; BETA REGRESSION; RECOVERY RATES; CORPORATE; RISK; PORTFOLIOS; BANKRUPTCY; INDUSTRY; DEBT; Continuous time-to-default; IFRS 9 and CECL; Lifetime Expected Loss; Loss Given Default; Multi-period; Term structure |
| Subjects: | 300 Social sciences > 330 Economics |
| Divisions: | Business, Economics and Information Systems > Institut für Betriebswirtschaftslehre > Lehrstuhl für Statistik und Risikomanagement (Prof. Dr. Rösch) |
| Depositing User: | Dr. Gernot Deinzer |
| Date Deposited: | 09 Mar 2020 10:37 |
| Last Modified: | 09 Mar 2020 10:37 |
| URI: | https://pred.uni-regensburg.de/id/eprint/14439 |
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