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Publication details

Multi-Period Structural Model of a Mortgage Portfolio with Cointegrated Factors

Journal Article

Gapko Petr, Šmíd Martin


serial: Finance a úvěr-Czech Journal of Economics and Finance vol.66, 6 (2016), p. 565-574

project(s): GA15-10331S, GA ČR

keywords: credit risk, mortgage, loan portfolio, dynamic model, estimation

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abstract (eng):

We propose a new dynamic two-factor model of a loan portfolio. Following the common\napproach, we quantify the credit risk associated with the portfolio by the probability\nof default and the loss given default, each of which is driven by a factor common for all\ndebts in the portfolio, and a factor individual to each debt. In line with the empirical\nevidence, the individual factors are assumed to be AR(1) processes. The common factors,\non the other hand, may be dependent on the external (macroeconomic) environment.\nWe apply our model to the US nationwide mortgage portfolio, fitting the dynamics\nof the factors with a VECM model with several macroeconomic indicators as exogenous\nvariables.

RIV: AH

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Institute of Information Theory and Automation