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).


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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
Digital Object Identifier (DOI): doi:10.1016/j.ejor.2006.07.049
ISSNs: 0377-2217 (print)
Keywords: finance, stochastic processes, credit risk, consumer lending, portfolio modelling
ePrint ID: 36199
Date :
Date Event
16 December 2007Published
Date Deposited: 12 Jan 2007
Last Modified: 16 Apr 2017 22:07
Further Information:Google Scholar

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