Modelling credit risk in portfolios of consumer loans: transition matrix model for consumer credit ratings


Malik, Madhur and Thomas, Lyn (2009) Modelling credit risk in portfolios of consumer loans: transition matrix model for consumer credit ratings. Southampton, UK, University of Southampton, 21pp. (Discussion Papers in Centre for Risk Research, (CRR-09-02) ).

Download

[img] PDF - Publishers print
Download (290Kb)

Description/Abstract

The corporate credit risk literature has many studies modelling the change in the
credit risk of corporate bonds over time. There is far less analysis of the credit risk for
portfolios of consumer loans. However behavioural scores, which are commonly
calculated on a monthly basis by most consumer lenders are the analogues of ratings in
corporate credit risk. Motivated by studies in corporate credit risk, we develop a Markov
chain model based on behavioural scores to establish the credit risk of portfolios of
consumer loans. We motivate the different aspects of the model – the need for a second
order Markov chain, the inclusion of economic variables and the age of the loan – using
data on a credit card portfolio from a major UK bank

Item Type: Monograph (Working Paper)
Keywords: markov chain, credit risk, logistic regression, credit scoring
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HG Finance
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Divisions: University Structure - Pre August 2011 > School of Management
ePrint ID: 71381
Date Deposited: 03 Feb 2010
Last Modified: 27 Mar 2014 18:50
URI: http://eprints.soton.ac.uk/id/eprint/71381

Actions (login required)

View Item View Item

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics