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

Lore Dirick, Tony Bellotti, Gerda Claeskens and Bart Baesens

No 557528, Working Papers of Department of Decision Sciences and Information Management, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Decision Sciences and Information Management, Leuven

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 due to the fact that 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 modelled, distinct from time of default for the susceptible population. In this paper, 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 data set.

Keywords: Credit risk modeling; Mixture cure model; Time-varying covariates; Macroeconomic factors; Survival analysis (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-ban and nep-rmg
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Published in KBI_1630

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Persistent link: https://EconPapers.repec.org/RePEc:ete:kbiper:557528

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