Structural models in consumer credit


Muniz de Andrade, Fabio Wendling and Thomas, Lyn (2007) Structural models in consumer credit. European Journal of Operational Research, 183, (3), 1569-1581. (doi:10.1016/j.ejor.2006.07.049).

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Description/Abstract

We propose a structural credit risk model for consumer lending using option theory and the concept of the value of the consumer reputation. Using Brazilian empirical data and a credit bureau score as proxy for creditworthiness we compare a number of alternative models before suggesting one that leads to a simple analytical solution for the probability of default. We apply the proposed model to portfolios of consumer loans introducing a factor to account for the mean influence of systemic economic factors on individuals. This results in a hybrid structural-reduced-form model. And comparisons are made with the Basel II approach. Our conclusions partially support that approach for modelling the credit risk of portfolios of retail credit.

Item Type: Article
ISSNs: 0377-2217 (print)
Related URLs:
Keywords: finance, stochastic processes, credit risk, consumer lending, portfolio modelling
Subjects: H Social Sciences > HG Finance
Divisions: University Structure - Pre August 2011 > School of Management
ePrint ID: 36199
Date Deposited: 12 Jan 2007
Last Modified: 27 Mar 2014 18:22
URI: http://eprints.soton.ac.uk/id/eprint/36199

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