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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, pp. 411-420. (doi:10.1057/jors.2009.123).

Record type: Article

Abstract

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.

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Published date: March 2010
Keywords: finance, credit risk, survival analysis, credit scoring

Identifiers

Local EPrints ID: 155033
URI: http://eprints.soton.ac.uk/id/eprint/155033
ISSN: 0160-5682
PURE UUID: 61872277-733c-48f1-8ae3-9dce9f400030

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Date deposited: 02 Jun 2010 13:47
Last modified: 18 Jul 2017 12:45

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Contributors

Author: Madhur Malik
Author: Lyn C. Thomas

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