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Publication details

Multifactor dynamic credit risk model

Conference Paper (Czech conference)

Dufek J., Šmíd Martin


serial: 32nd International Conference Mathematical Methods in Economics MME 2014, p. 185-190

action: MME 2014. International Conference Mathematical Methods in Economics /32./, (Olomouc, CZ, 10.09.2014-12.09.2014)

keywords: loss given default, default rate, credit risk

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abstract (eng):

We propose a new dynamic model of the Merton type, based on the Vasicek model. We generalize Vasicek model in three ways: we add model for loss given default (LGD), we add dynamics to the model and we allow non-normal distri- butions of risk factors. Then we add a retrospective interaction of underlying factors and found a non-linear behaviour of these factors. In particular, the evolution of factors underlying the DR and the LGD is assumed to be ruled by a non-linear vector AR process with lagged DR and LGD and their non-linear transformations. We apply our new model on real US mortgage data and demonstrate its statistical significance.

RIV: BB

2012-12-21 16:10