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Comparing Debt Characteristics and LGD Models for Different Collections Polices

by Lyn C. Thomas of the University of Southampton,
Ania Matuszyk of the Warsaw School of Economics, and
Angela  Moore of the University of Southampton

September 2009

Abstract: This paper discusses the similarities and differences in the collection process between in-house and 3rd party collection. The objective is to show that, although the same type of modelling approach to estimating the Loss Given Default (LGD) can be used in both cases, the details will be significantly different. In particular, the form of the LGD distribution suggests that one needs to split the distribution in different ways in the two cases, as well as using different variables. The comparisons are made using two data sets of the collection outcomes from two sets of unsecured consumer defaulters.

Keywords: Credit risk, Collection process, LGD modelling

Forthcoming in: International Journal of Forecasting

Previously titled: Collections Policy Comparison in LGD Modelling

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