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Modelling LGD for unsecured personal loans: decision tree approach

Modelling LGD for unsecured personal loans: decision tree approach
Modelling LGD for unsecured personal loans: decision tree approach
The New Basel Accord, which was implemented in 2007, has made a significant difference to the use of modelling within financial organisations. In particular it has highlighted the importance of Loss Given Default (LGD) modelling. We propose a decision tree approach to modelling LGD for unsecured consumer loans where the uncertainty in some of the nodes is modelled using a mixture model, where the parameters are obtained using regression. A case study based on default data from the in-house collections department of a UK financial organisation is used to show how such regression can be undertaken.
Basel II, consumer credit, LGD
0160-5682
393-398
Thomas, L. C.
a3ce3068-328b-4bce-889f-965b0b9d2362
Mues, C.
07438e46-bad6-48ba-8f56-f945bc2ff934
Matuszyk, A.
609703a0-5c89-40d3-acb2-885e03779c37
Thomas, L. C.
a3ce3068-328b-4bce-889f-965b0b9d2362
Mues, C.
07438e46-bad6-48ba-8f56-f945bc2ff934
Matuszyk, A.
609703a0-5c89-40d3-acb2-885e03779c37

Thomas, L. C., Mues, C. and Matuszyk, A. (2010) Modelling LGD for unsecured personal loans: decision tree approach. Journal of the Operational Research Society, 61, 393-398. (doi:10.1057/jors.2009.67).

Record type: Article

Abstract

The New Basel Accord, which was implemented in 2007, has made a significant difference to the use of modelling within financial organisations. In particular it has highlighted the importance of Loss Given Default (LGD) modelling. We propose a decision tree approach to modelling LGD for unsecured consumer loans where the uncertainty in some of the nodes is modelled using a mixture model, where the parameters are obtained using regression. A case study based on default data from the in-house collections department of a UK financial organisation is used to show how such regression can be undertaken.

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Published date: January 2010
Keywords: Basel II, consumer credit, LGD
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Identifiers

Local EPrints ID: 152549
URI: http://eprints.soton.ac.uk/id/eprint/152549
DOI: doi:10.1057/jors.2009.67
ISSN: 0160-5682
PURE UUID: f16ebc19-9f7b-4ab2-894a-3c0ce3312373
ORCID for C. Mues: ORCID iD orcid.org/0000-0002-6289-5490

Catalogue record

Date deposited: 14 May 2010 15:25
Last modified: 14 Mar 2024 02:49

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Contributors

Author: L. C. Thomas
Author: C. Mues ORCID iD
Author: A. Matuszyk

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