DefaultRisk.com the web's biggest credit risk modeling resource.

Credit Jobs

Home Glossary Links FAQ / About Site Guide Search
pp_recov118

Up

Submit Your Paper

In Rememberance: World Trade Center (WTC)

doi> search: A or B

Cited by these papers

Related articles

Alternative sources

Export citation to:
- HTML
- Text (plain)
- BibTeX
- RIS
- ReDIF

Estimating Bank Loans Loss Given Default by Generalized Additive Models

by Raffaella Calabrese of University of Milano-Bicocca

October 2012

Abstract: With the implementation of the Basel II accord, the development of accurate loss given default models is becoming increasingly important. The main objective of this paper is to propose a new model to estimate Loss Given Default (LGD) for bank loans by applying generalized additive models. Our proposal allows to represent the high concentration of LGDs at the boundaries. The model is useful in uncovering nonlinear covariate effects and in estimating the mean and the variance of LGDs. The suggested model is applied to a comprehensive survey on loan recovery process of Italian banks. To model LGD in downturn conditions, we include macroeconomic variables in the model. Out-of-time validation shows that our model outperforms popular models like Tobit, decision tree and linear regression models for different time horizons.

Keywords: downturn LGD, generalized additive model, Basel II.

Books Referenced in this paper:  (what is this?)

Download paper (836K PDF) 18 pages

Most Cited Books within Recoveries/LGD Papers

[