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The estimation of marginal loan write-off probabilities is a non-trivial task when modelling the loss given default (LGD) risk parameter in credit risk. We explore two types of survival models in estimating the overall write-off probability…
The lifetime behaviour of loans is notoriously difficult to model, which can compromise a bank's financial reserves against future losses, if modelled poorly. Therefore, we present a data-driven comparative study amongst three techniques in…
Credit risk assessment is a crucial aspect of financial decision-making, enabling institutions to predict the likelihood of default and make informed lending decisions. Two prominent methodologies in credit risk modeling are logistic…
Survival analysis has become a standard approach for modelling time to default by time-varying covariates in credit risk. Unlike most existing methods that implicitly assume a stationary data-generating process, in practise, mortgage…
Diffusion in a linear potential in the presence of position-dependent killing is used to mimic a default process. Different assumptions regarding transport coefficients, initial conditions, and elasticity of the killing measure lead to…
This paper proposes a simple technical approach for the analytical derivation of Point-in-Time PD (probability of default) forecasts, with minimal data requirements. The inputs required are the current and future Through-the-Cycle PDs of…
Many studies employ the analysis of time-to-event data that incorporates competing risks and right censoring. Most methods and software packages are geared towards analyzing data that comes from a continuous failure time distribution.…
The IFRS 9 accounting standard requires the prediction of credit deterioration in financial instruments, i.e., significant increases in credit risk (SICR). However, the definition of such a SICR-event is inherently ambiguous, given its…
For credit risk management purposes in general, and for allocation of regulatory capital by banks in particular (Basel II), numerical assessments of the credit-worthiness of borrowers are indispensable. These assessments are expressed in…
In banking practice, rating transition matrices have become the standard approach of deriving multi-year probabilities of default (PDs) from one-year PDs, the latter normally being available from Basel ratings. Rating transition matrices…
This paper develops a continuous-time filtering framework for estimating a hazard rate subject to an unobservable change-point. This framework naturally arises in both financial and insurance applications, where the default intensity of a…
We introduce a novel class of credit risk models in which the drift of the survival process of a firm is a linear function of the factors. The prices of defaultable bonds and credit default swaps (CDS) are linear-rational in the factors.…
We propose two structural models for stochastic losses given default which allow to model the credit losses of a portfolio of defaultable financial instruments. The credit losses are integrated into a structural model of default events…
In the pursuit of modelling a loan's probability of default (PD) over its lifetime, repeat default events are often ignored when using Cox Proportional Hazard (PH) models. Excluding such events may produce biased and inaccurate…
Many medical decisions involve the use of dynamic information collected on individual patients toward predicting likely transitions in their future health status. If accurate predictions are developed, then a prognostic mode can identify…
In recent years research on credit risk modelling has mainly focused on default probabilities. Recovery rates are usually modelled independently, quite often they are even assumed constant. Then, however, the structural connection between…
Risk management is an important practice in the banking industry. In this paper we develop a new methodology to estimate and predict the probability of default (PD) based on the rating transition matrices, which relates the rating…
The risk of a credit portfolio depends crucially on correlations between the probability of default (PD) in different economic sectors. Often, PD correlations have to be estimated from relatively short time series of default rates, and the…
We consider a structural default model in an interconnected banking network as in Lipton [International Journal of Theoretical and Applied Finance, 19(6), 2016], with mutual obligations between each pair of banks. We analyse the model…
In recurrent survival analysis where the event of interest can occur multiple times for each subject, frailty models play a crucial role by capturing unobserved heterogeneity at the subject level within a population. Frailty models…