Macro-economic factors in credit risk calculations: including time-varying covariates in mixture cure models

Dirick, Lore, Bellotti, Tony, Claeskens, Gerda and Baesens, Bart (2017) Macro-economic factors in credit risk calculations: including time-varying covariates in mixture cure models. Journal of Business and Economic Statistics, 1-14. (doi:10.1080/07350015.2016.1260471).

Record type: Article

Abstract

The prediction of the time of default in a credit risk setting via survival analysis needs to take a high censoring rate into account. This rate is because default does not occur for the majority of debtors. Mixture cure models allow the part of the loan population that is unsusceptible to default to be modeled, distinct from time of default for the susceptible population. In this article, we extend the mixture cure model to include time-varying covariates. We illustrate the method via simulations and by incorporating macro-economic factors as predictors for an actual bank dataset.

Text

Macro Economic Factors in Credit Risk Calculations Including Time Varying Covariates in Mixture Cure Models - Accepted Manuscript

Available under License University of Southampton Accepted Manuscript Licence.

Download (534kB)