Modelling credit risk of portfolios of consumer loans

Malik, Madhur and Thomas, Lyn C. (2010) Modelling credit risk of portfolios of consumer loans. [in special issue: Consumer Credit Risk Modelling] Journal of the Operational Research Society, 61, (3), part 1, 411-420. (doi:10.1057/jors.2009.123).


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One of the issues that the Basel Accord highlighted was that, though techniques for estimating the probability of default and hence the credit risk of loans to individual consumers are well established, there were no models for the credit risk of portfolios of such loans. Motivated by the reduced form models for credit risk in corporate lending, we seek to exploit the obvious parallels between behavioural scores and the ratings ascribed to corporate bonds to build consumer-lending equivalents. We incorporate both consumer-specific ratings and macroeconomic factors in the framework of Cox Proportional Hazard models. Our results show that default intensities of consumers are significantly influenced by macro factors. Such models then can be used as the basis for simulation approaches to estimate the credit risk of portfolios of consumer loans.

Item Type: Article
Digital Object Identifier (DOI): doi:10.1057/jors.2009.123
ISSNs: 0160-5682 (print)
1476-9360 (electronic)
Keywords: finance, credit risk, survival analysis, credit scoring
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Divisions : University Structure - Pre August 2011 > School of Management
ePrint ID: 155033
Accepted Date and Publication Date:
March 2010Published
Date Deposited: 02 Jun 2010 13:47
Last Modified: 31 Mar 2016 13:25

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