the web's biggest credit risk modeling resource.

Credit Jobs

Home Glossary Links FAQ / About Site Guide Search

Submit Your Paper

In Rememberance: World Trade Center (WTC)

Export citation to:
- Text (plain)
- BibTeX

Cowan, Adrian M., Charles D. Cowan, "Default Correlation: An empirical investigation of a subprime lender, Journal of Banking & Finance, Vol. 28, No. 4, (April 2004), pp. 753-771.

Abstract: In recent years, subprime lending has grown substantially as an important sector of the credit markets. This paper is concerned with the risk management of subprime loan portfolios and the importance of default correlation in measuring that risk. Using a large portfolio of residential subprime loans from an anonymous subprime lender, we show that default correlation is substantial for this lender. In particular, the significance of default correlation increases as the internal credit rating declines. Our results suggest that lenders and regulators would be well served investing in the understanding of default correlation in subprime portfolios.

JEL Classification: G21, C10.

Keywords: Credit risk, Default correlation, Mortgage, Subprime lending.