Kruger, Steffen and Rosch, Daniel (2017) Downturn LGD modeling using quantile regression. JOURNAL OF BANKING & FINANCE, 79. pp. 42-56. ISSN 0378-4266, 1872-6372
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Literature on Losses Given Default (LGD) usually focuses on mean predictions, even though losses are extremely skewed and bimodal. This paper proposes a Quantile Regression (QR) approach to get a comprehensive view on the entire probability distribution of losses. The method allows new insights on covariate effects over the whole LGD spectrum. In particular, middle quantiles are explainable by observable covariates while tail events, e.g., extremely high LGDs, seem to be rather driven by unobservable random events. A comparison of the QR approach with several alternatives from recent literature reveals advantages when evaluating downturn and unexpected credit losses. In addition, we identify limitations of classical mean prediction comparisons and propose alternative goodness of fit measures for the validation of forecasts for the entire LGD distribution. (C) 2017 Elsevier B.V. All rights reserved.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | RECOVERY RATES; GIVEN-DEFAULT; BANK LOANS; Loss given default; Downturn; Quantile regression; Recovery; Validation |
| Subjects: | 300 Social sciences > 330 Economics |
| Divisions: | Business, Economics and Information Systems > Institut für Betriebswirtschaftslehre Business, Economics and Information Systems > Institut für Betriebswirtschaftslehre > Lehrstuhl für Statistik und Risikomanagement (Prof. Dr. Rösch) |
| Depositing User: | Dr. Gernot Deinzer |
| Date Deposited: | 14 Dec 2018 13:10 |
| Last Modified: | 15 Feb 2019 11:43 |
| URI: | https://pred.uni-regensburg.de/id/eprint/804 |
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