-
The loss optimization of loan recovery decision times using forecast cashflows Journal of Credit Risk (IF 0.88) Pub Date : 2022-01-01 Arno Botha,Conrad Beyers,Pieter de Villiers
-
On comprehensive balance sheet stress testing and net interest income risk attribution Journal of Credit Risk (IF 0.88) Pub Date : 2022-01-01 Jimmy Skoglund,Wei Chen
-
Bank-sourced transition matrixes: are banks’ internal credit risk estimates Markovian? Journal of Credit Risk (IF 0.88) Pub Date : 2022-01-01 Barbora Štěpánková
-
A structural credit risk model based on purchase order information Journal of Credit Risk (IF 0.88) Pub Date : 2022-01-01 Suguru Yamanaka,Misaki Kinoshita
This study proposes a credit risk model based on purchase order (PO) information, which is called a gPO-based structural model,hand performs an empirical analysis on credit risk assessment using real PO samples. A time-series model of PO transitions is introduced and the asset value of the borrower firm is obtained using the PO time-series model. Then, we employ a structural framework in which default
-
Customer churn prediction for commercial banks using customer-value-weighted machine learning models Journal of Credit Risk (IF 0.88) Pub Date : 2021-01-01 Zongxiao Wu,Zhiyong Li
-
Does economic policy uncertainty exacerbate corporate financial distress risk? Journal of Credit Risk (IF 0.88) Pub Date : 2021-01-01 Jie Sun,Fangyuan Yin,Edward Altman,Lewis Makosa
-
Forecasting consumer credit recovery failure: classification approaches Journal of Credit Risk (IF 0.88) Pub Date : 2021-01-01 Hyeongjun Kim,Hoon Cho,Doojin Ryu
-
An interpretable Comprehensive Capital Analysis and Review (CCAR) neural network model for portfolio loss forecasting and stress testing Journal of Credit Risk (IF 0.88) Pub Date : 2021-01-01 Heng Chen
-
Three ways to improve the systemic risk analysis of the Central and Eastern European region using SRISK and CoVaR Journal of Credit Risk (IF 0.88) Pub Date : 2021-01-01 Marta Karaś,Witold Szczepaniak
This paper proposes three modifications to the calculation of SRISK and CoVaR. These modifications make it possible to apply the two measures to an additional 31 systemically important financial institutions in the Central and Eastern European (CEE) region. They also add information about interconnectedness and complexity, and illuminate risk factors that are endemic to CEE and Western European stock
-
Explaining credit ratings through a perpetual-debt structural model Journal of Credit Risk (IF 0.88) Pub Date : 2021-01-01 Gaia Barone
-
Small and medium-sized enterprises that borrow from "alternative" lenders in the United Kingdom: who are they? Journal of Credit Risk (IF 0.88) Pub Date : 2021-01-01 Gabriele Sabato,Edward Altman,Galina Andreeva
Access to credit for small and medium-sized enterprises (SMEs) is an important condition of successful economic growth. Lending to SMEs is no longer restricted to banks: many new players (or alternative lenders) are entering the credit market. However, the research has not identified what kind of SMEs choose these alternative lenders. Are they just a random sample from the overall population of SMEs
-
Covid-19 and the credit cycle: 2020 revisited and 2021 outlook Journal of Credit Risk (IF 0.88) Pub Date : 2021-01-01 Edward Altman
-
Incorporating small-sample defaults history in loss given default models Journal of Credit Risk (IF 0.88) Pub Date : 2021-01-01 Aneta Ptak-Chmielewska,Paweł Kopciuszewski
-
Agency problems in multinational banks: does parent complexity affect the risk-taking of subsidiaries? Journal of Credit Risk (IF 0.88) Pub Date : 2021-01-01 Krzysztof Gajewski,Łukasz Kurowski
-
A survey of machine learning in credit risk Journal of Credit Risk (IF 0.88) Pub Date : 2021-01-01 Joseph Breeden
-
Review of credit risk and credit scoring models based on computing paradigms in financial institutions Journal of Credit Risk (IF 0.88) Pub Date : 2021-01-01 Deepika Sharma,Ashutosh Vashistha,Manoj Gupta
-
From incurred loss to current expected credit loss: a forensic analysis of the allowance for loan losses in unconditionally cancelable credit card portfolios Journal of Credit Risk (IF 0.88) Pub Date : 2020-12-01 Jose Canals-Cerda
-
The economics of debt collection Journal of Credit Risk (IF 0.88) Pub Date : 2020-12-01 Erik Durbin,Charles Romeo
-
Bankcard performance during the Great Recession Journal of Credit Risk (IF 0.88) Pub Date : 2020-12-01 Paul Calem,Julapa Jagtiani,Loretta Mester
-
The impact of data aggregation and risk attributes on stress testing models of mortgage default Journal of Credit Risk (IF 0.88) Pub Date : 2020-11-01 Feng Li,Yan Zhang
Stress testing models have been developed at various levels of data aggregation with or without risk attributes, but there is limited research on the joint impact of these modeling choices. In this paper, we investigate how data aggregation and risk attributes affect the development and performance of stress testing models by studying residential mortgage loan defaults. We develop mortgage default
-
Supervisory bank risk early warning modeling: an examiner’s first line of defense Journal of Credit Risk (IF 0.88) Pub Date : 2020-11-01 Christopher Henderson,Shaohui Jia,Charles Mattioli
The protracted period of stability in the banking sector since the Great Recession, accompanied by the evolving time path of interest rates, makes understanding the causes and timing of the next economic downturn particularly acute for regulatory agencies. The development and implementation of supervisory ratings models is critical in providing a first response by regulatory agencies to shift examination
-
A sensitivity analysis of the alpha factor Journal of Credit Risk (IF 0.88) Pub Date : 2020-03-01 Michael Einemann,Michael Kalkbrener
In the credit risk weighted assets formula for derivatives, the exposure-at-default is scaled by a multiplier: the so-called internal alpha factor. This has been introduced by the Basel Committee to offset the model or estimation error arising from the usage of a constant exposure amount and should account for the uncertainty of counterparty exposure, the correlation between exposures and the correlation
-
Contagious defaults in a credit portfolio: a Bayesian network approach Journal of Credit Risk (IF 0.88) Pub Date : 2020-03-01 Ioannis Anagnostou,Javier Sanchez Rivero,Sumit Sourabh,Drona Kandhai
The robustness of credit portfolio models is of great interest for financial institutions and regulators, since misspecified models translate into insufficient capital buffers and a crisis-prone financial system. In this paper, the authors propose a method to enhance credit portfolio models based on the model of Merton by incorporating contagion effects. While, in most models, the risks related to
-
Current expected credit loss procyclicality: it depends on the model Journal of Credit Risk (IF 0.88) Pub Date : 2020-03-01 Joseph L. Breeden,Maxim Vaskouski
The new guidelines for loan loss reserves, current expected credit loss (CECL), were initially proposed so that lenders’ loss reserves would be forward-looking. Some recent studies have suggested that CECL could be procyclical, meaning that loss reserves would peak at the peak of a crisis. Although it is better than seeing failure only after it has happened, being required to raise liquidity at the
-
Elliptical and Archimedean copula models: an application to the price estimation of portfolio credit derivatives Journal of Credit Risk (IF 0.88) Pub Date : 2020-01-01 Nneka Umeorah,Phillip Mashele,Matthias Ehrhardt
This paper explores the impact of elliptical and Archimedean copula models on the valuation of basket default swaps. We employ Monte Carlo simulation, in connection with the copula models, to estimate the default times and to calculate the swap payment legs and the cumulative swap premium. The numerical experiments reveal some sensitivity analysis on the impact of swap parameters on the fair prices
-
Art-secured lending: a risk analysis framework Journal of Credit Risk (IF 0.88) Pub Date : 2020-01-01 Arturo Cifuentes,Ventura Charlin
In recent years, art-secured lending has grown in both size and popularity. Yet, this business still lacks a well-accepted approach to assess the risks involved. To that end, in this study, we identify the three types of risks involved in an art-secured lending operation and present a framework to assess their combined effects via a Monte Carlo simulation. In addition, we derive some useful closed-form
-
IFRS 9 compliant economic adjustment of expected credit loss modeling Journal of Credit Risk (IF 0.88) Pub Date : 2020-01-01 Mariya Gubareva
This paper presents an International Financial Reporting Standard 9 (IFRS 9) compliant solution related to expected credit loss modeling. Commonly, credit default swap(CDS) spreads are considered as market indicators of future debt performance. However, we demonstrate empirically that nondefault risks explain a relevant part of the CDS spread, and we assess the average weight-of-default component for
-
Corporate default risk modeling under distressed economic and financial conditions in a developing economy Journal of Credit Risk (IF 0.88) Pub Date : 2020-01-01 Frank Ranganai Matenda,Mabutho Sibanda,Eriyoti Chikodza,Victor Gumbo
We create stepwise logistic regression models to predict the probability of default for private nonfinancial firms under distressed financial and economic conditions in a developing economy. Our main aim is to identify and interpret the drivers of private firm probability of default. For applicability and efficacy purposes, we apply a unique real-world data set of Zimbabwean private firms. Our experimental
-
Credit exposure under the new standardized approach for counterparty credit risk: fixing the treatment of equity options Journal of Credit Risk (IF 0.88) Pub Date : 2020-01-01 Michael Kratochwil
The new standardized approach for measuring counterparty credit risk exposures (SA-CCR) will replace the existing regulatory standard methods for exposure quantification. There is an ongoing discussion with respect to the calibration and appropriate treatment of nonlinear products under the SA-CCR. The calibration of supervisory parameters for equity derivatives has been a particular bone of contention
-
A joint model of failures and credit ratings Journal of Credit Risk (IF 0.88) Pub Date : 2020-01-01 Rainer Hirk,Laura Vana,Kurt Hornik,Stefan Pichler
We propose a novel framework for credit risk modeling, where default or failure information and rating or expert information are jointly incorporated in the model. These sources of information are modeled as response variables in a multivariate ordinal regression model estimated by a composite likelihood procedure. The proposed framework provides probabilities of default conditional on the rating information
-
Covid-19 and the credit cycle Journal of Credit Risk (IF 0.88) Pub Date : 2020-01-01 Edward Altman
The Covid-19 health crisis has dramatically affected just about every aspect of the economy, including the transition from a record long benign credit cycle to a stressed one, with still uncertain dimensions This paper seeks to assess the credit climate from just before the unexpected global health crisis catalyst to its immediate and extended impact We analyze the performance of several key indicators
-
Basel risk weight functions and forward-looking expected credit losses Journal of Credit Risk (IF 0.88) Pub Date : 2019-12-01 Vlachostergios Eleftherios
It is evident that the definition of expected credit losses (ECL) diverges between International Financial Reporting Standard 9 (IFRS 9) (the accounting model recently adopted by European banks) and the probability of default/loss given default methodology used in the Basel internal ratings-based approach to capital adequacy estimation. The ongoing discussion on the incorporation of lifetime ECL into
-
Credit valuation adjustment wrong-way risk in a Gaussian copula model Journal of Credit Risk (IF 0.88) Pub Date : 2019-12-01 Kelin Pan
The credit valuation adjustment (CVA) is currently calculated in financial institutions to measure counterparty credit risk (CCR) on over-the-counter derivatives. A key factor in CVA is wrong-way risk (WWR): the correlation between counterparty exposures and credit qualities. In this paper, we present an analytical expression for CVA with WWR under the assumption of the lognormally distributed trade
-
An efficient portfolio loss model Journal of Credit Risk (IF 0.88) Pub Date : 2019-01-01 Christian Fenger
We propose a new parsimonious model for valuating portfolio credit derivatives dependent on aggregate loss. The starting point is the loss distribution, which is constructed to be time dependent. We let the loss be beta distributed, and, by implication, the loss process becomes a stochastic jump process, where a jump corresponds to losses appearing simultaneously. The model matches empirical loss data
-
Asset correlation estimation for inhomogeneous exposure pools Journal of Credit Risk (IF 0.88) Pub Date : 2019-01-01 Christoph Wunderer
A possible data source for the estimation of asset correlations is default time series. This study investigates the systematic error that is made if the exposure pool underlying a default time series is assumed to be homogeneous when in reality it is not. We find that the asset correlation will always be underestimated if homogeneity with respect to the probability of default (PD) is wrongly assumed
-
Wrong-way risk of interest rate instruments Journal of Credit Risk (IF 0.88) Pub Date : 2019-01-01 Ramzi Ben-Abdallah,Michèle Breton,Oussama Marzouk
Wrong-way risk (WWR) arises when the value of a financial transaction is adversely correlated with the creditworthiness of the counterparty. This paper investigates WWR effects on the pricing of counterparty credit risk for interest rate instruments. These effects are captured via the correlations between the default of the counterparty and the two relevant market risk factors, namely the level and
-
A consumer credit risk structural model based on affordability: balance at risk Journal of Credit Risk (IF 0.88) Pub Date : 2019-01-01 Marcelo Perlin,Marcelo B. Righi,Tiago P. Filomena
-
The influence of firm efficiency on agency credit ratings Journal of Credit Risk (IF 0.88) Pub Date : 2019-01-01 Dafydd Mali,Hyoungjoo Lim
This paper examines the relationship between relative efficiency and credit ratings using a sample of Korean listed firms and finds a positive relationship in the subsequent period after adjusting for absolute efficiency. The results suggest that credit rating agencies consider relative efficiency as a variable that influences a firm’s ability to survive a business cycle. Interestingly, when we divide
-
Calibration and mapping of credit scores by riding the cumulative accuracy profile Journal of Credit Risk (IF 0.88) Pub Date : 2019-01-01 Marco van der Burgt
A lot of literature on credit risk scoring techniques exists, but less research is available regarding the mapping of credit scores to ratings and the calibration of ratings. This paper introduces an algorithm for mapping credit scores to credit ratings and estimating a probability of default (PD) per rating grade. The algorithm is based on step-wise partitioning of the cumulative accuracy profile
-
Costs of capital under credit risk Journal of Credit Risk (IF 0.88) Pub Date : 2019-01-01 Peter Reichling,Anastasiia Zbandut
-
A statistical technique to enhance application scorecard monitoring Journal of Credit Risk (IF 0.88) Pub Date : 2019-01-01 Nico Kritzinger,Gary Wayne van Vuuren
Application scoring plays a critical role in determining the future quality of a lender’s book. It is therefore important to monitor the performance of an application scorecard to ensure it performs as expected. Attention has so far been focused on application scorecard modeling and assembly techniques. An area that has received less consideration is application scorecard implementation. Performance
-
On probability of default and its relation to observed default frequency and a common factor Journal of Credit Risk (IF 0.88) Pub Date : 2019-01-01 Brent Oeyen,Oliver Salazar Celis
This paper considers a definition of through-the-cycle (TTC) as independent from an economic state that can result in a time-varying TTC probability of default (PD). A top-down approach is proposed to transform hybrid PDs into TTC PDs through the use of a point-in-time-ness (PITness) parameter as an additional parameter to the Vasicek model, which expresses the dependency of a hybrid PD on a common
-
Are lenders using risk-based pricing in the Italian consumer loan market? The effect of the 2008 crisis Journal of Credit Risk (IF 0.88) Pub Date : 2019-01-01 Silvia Magri
This paper analyzes whether in Italy the price of consumer loans is based on borrower specific risk. Mispricing could threat financial stability through negative effects on lenders' profitability; risk-based pricing also leads to a more efficient allocation of credit through lower prices for low-risk borrowers, with positive effects on economic growth and financial stability. The evidence available
-
Bank risk, bank bailouts and sovereign capacity during a financial crisis: a cross-country analysis Journal of Credit Risk (IF 0.88) Pub Date : 2018-01-01 Rafael Schiozer,Frederico Mourad,Ramon S. Vilarins
This paper analyzes the competitive effects of government bailout expectations on bank risk using a sample of banks in Organisation for Economic Co-operation and Development countries from 2005 to 2015. We verify that, ordinarily, the bailout expectations of a given bank increase its competitors’ risk. During a crisis, however, this effect is mitigated, ie, banks with more protected competitors reduce
-
An empirical study on credit risk management: the case of nonbanking financial companies Journal of Credit Risk (IF 0.88) Pub Date : 2018-01-01 Sunita Mall
-
Consumer risk appetite, the credit cycle and the housing bubble Journal of Credit Risk (IF 0.88) Pub Date : 2018-01-01 Joseph Breeden,José Canals-Cerdá
-
Credit default prediction using a support vector machine and a probabilistic neural network Journal of Credit Risk (IF 0.88) Pub Date : 2018-01-01 Mohammad Zoynul Abedin,Chi Guotai,Sisira Colombage,Fahmida–E Moula
The design of consistent classifiers to forecast credit-granting choices is critical for many financial decision-making practices. Although a number of artificial and statistical techniques have been developed to predict customer insolvency, how to provide an inclusive appraisal of prediction models and recommend adequate classifiers is still an imperative and understudied area in credit default prediction
-
Systemic risk in the financial system: capital shortfalls under Brexit, the US elections and the Italian referendum Journal of Credit Risk (IF 0.88) Pub Date : 2018-01-01 Robert Engle,Cristiano Zazzara
Recent episodes of stress in the financial system have fostered a great deal of discussion regarding new supervisory and regulatory tools for financial institutions. The recent introduction of additional capital requirements for systemically important financial institutions is one example of the concrete measures that are being taken by regulators to mitigate systemic risk. In order to assist market
-
Default contagion among credit modalities: evidence from Brazilian data Journal of Credit Risk (IF 0.88) Pub Date : 2018-01-01 Michel Alexandre,Giovani A. S. Brito,Theo C. Martins
The aim of this paper is to assess the impact of the default of some personal credit modality in the future default of the other modalities. Using Brazilian microdata, we run a logistic regression to estimate the probability of default in a given credit modality, including among the explanatory variables the personal overdue exposure in the other credit modalities. Our results show that such effect
-
A new model for bank loan loss given default by leveraging time to recovery Journal of Credit Risk (IF 0.88) Pub Date : 2018-01-01 Heng Z. Chen
-
Modeling dependent risk factors with CreditRisk+ Journal of Credit Risk (IF 0.88) Pub Date : 2018-01-01 Xiaohang Zhang,SuBang Choe,Ji Zhu,Jill Bewick
The CreditRisk model has been widely used for calculating the loss distribution of a credit portfolio. However, its basic assumption of independent risk factors is not consistent with reality. Although the dependent structure can be mimicked by setting factor weights, a reasonable way to introduce correlated risk factors is needed. In this paper, an extension of the CreditRisk model, called the mixed
-
Moment estimators for autocorrelated time series and their application to default correlations Journal of Credit Risk (IF 0.88) Pub Date : 2018-01-01 Christoph Frei,Marcus Wunsch
-
Calculating capital charges for sector concentration risk Journal of Credit Risk (IF 0.88) Pub Date : 2018-01-01 Cornelius Kurtz,Eva Lütkebohmert,Julian Sester
We propose a methodology to quantify capital charges for concentration risk when economic capital calculations are conducted within a multifactor Merton framework. The concentration charge is defined through the impact of the sector on the portfolio loss curve. We propose two ways of measuring this effect. The first method relies on Monte Carlo simulation but has the advantage of not requiring the
-
A fifty-year retrospective on credit risk models, the Altman Z -score family of models and their applications to financial markets and managerial strategies Journal of Credit Risk (IF 0.88) Pub Date : 2018-01-01 Edward I. Altman
Fifty years ago, in 1967, I completed my PhD dissertation, which involved the first multivariate model for predicting the financial health of US manufacturing firms and whether or not they were likely to file for bankruptcy. That work was followed shortly afterward (in 1968) by the publication of the model’s specifications. Despite its “old age”, the Altman Z-score is still the standard against which
-
A copula approach to credit valuation adjustment for swaps under wrong-way risk Journal of Credit Risk (IF 0.88) Pub Date : 2018-01-01 Jakub Cerny, Jiri Witzany
This paper deals with the credit valuation adjustment (CVA) of interest rate swap (IRS) contracts in the presence of an adverse dependence between the default time and interest rates: so-called wrong-way risk (WWR). It compares the upper Frechet bound approach introduced in a 2013 paper by Umberto Cherubini with a new semi-analytical IRS–CVA formula that we are proposing as a modification of Cherubini’s
-
Nonlinear relationships in a logistic model of default for a high-default installment portfolio Journal of Credit Risk (IF 0.88) Pub Date : 2018-01-01 Christian Lohmann, Thorsten Ohliger
This study uses data on consumer credit provided by a German retail and trading company along with generalized additive models to analyze nonlinear relationships and their effect on predicting the probability of default in the context of consumer credit scoring. In particular, this study examines which aspects of the contract and which characteristics of the debtor are nonlinearly related to the probability
-
Reliability and agreement of credit ratings in the Mexican fixed-income market Journal of Credit Risk (IF 0.88) Pub Date : 2017-09-01 Ventura Charlin,Arturo Cifuentes
-
When banks venture beyond home turf: consequences for loan performance Journal of Credit Risk (IF 0.88) Pub Date : 2017-09-01 Yuta Tanoue,Satoshi Yamashita
Depopulation in provincial areas has recently caused a decline in regional economies in Japan. Japanese regional banks have thus been advancing into areas outside their original operational bases, especially into major cities and urban regions. Since lending to areas outside the original operational base is inherently more uncertain (and increasing), such lending behavior is expected to significantly
-
Addressing probationary period within a competing risks survival model for retail mortgage loss given default Journal of Credit Risk (IF 0.88) Pub Date : 2017-09-01 Richard Wood,David Powell
This paper builds on the established two-stage modeling framework for retail mortgages in which loss given default is computed as the product of property possession given default probability and loss given possession. In deriving the former, previous studies have suffered from a lack of clarity in their definitions of the post default outcomes of “cure” (no loss) and “possession” (some loss). The present
-
Primary-firm-driven portfolio loss Journal of Credit Risk (IF 0.88) Pub Date : 2017-06-01 Stuart Turnbull
Many financial institutions provide loans to secondary firms, whose economic survival depends on the economic condition of primary firms. Even if loans from primary firms are not held in the loan portfolio, the financial distress of primary firms can adversely affect the loan portfolio of a financial institution. This paper describes a simple model that can be used for risk management. Our model directly