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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), pp. 1569-1581. (doi:10.1016/j.ejor.2006.07.049).

Record type: Article


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.

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Published date: 16 December 2007
Keywords: finance, stochastic processes, credit risk, consumer lending, portfolio modelling


Local EPrints ID: 36199
ISSN: 0377-2217
PURE UUID: a3a50c0a-766d-4789-ac5d-83165c9f76d8

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Date deposited: 12 Jan 2007
Last modified: 17 Jul 2017 15:45

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Author: Fabio Wendling Muniz de Andrade
Author: Lyn Thomas

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