Modeling a distribution of mortgage credit losses
| Author(s): | PhDr. Petr Gapko Ph.D., RNDr. Martin Šmíd Ph.D., |
|---|---|
| Type: | Article in collection |
| Year: | 2010 |
| Number: | 0 |
| ISSN / ISBN: | 978-80-7394-218-2 |
| Published in: | Proceedings of the 28th International Conference on Mathematical Methods is Economics 2010 |
| Publishing place: | České Budějovice |
| Keywords: | Credit Risk, Mortgage, Delinquency Rate, Generalizes Hyperbolic Distribution, Normal Distribution |
| JEL codes: | G21 |
| Suggested Citation: | |
| Grants: | 402/09/0965: New Approaches for monitoring and prediction of capital markets 402/09/H045 - Nelineární dynamika v peněžní ekonomii a financích. Teorie a empirické modely GAUK 46108: New Nonlinear Capital Markets Theories: Fractal, Bifurcational and Behavioral Approach |
| Abstract: | One of the biggest risks arising from financial operations is the risk of counterparty default, commonly known as a “credit risk”. Leaving unmanaged, the credit risk would, with a high probability, result in a crash of a bank. In our paper, we will focus on the credit risk quantification methodology. Generalizing the well known KMV model, standing behind Basel II, we build a model of a loan portfolio involving a dynamics of the common factor, influencing the borrowers’ assets, which we allow to be non-normal. We show how the parameters of our model may be estimated by means of past mortgage deliquency rates. We give a statistical evidence that the non-normal model is much more suitable than the one assuming the normal distribution of the risk factors. |
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