Stress Testing Banks' Credit Risk Using Mixture Vector Autoregressive Models

Tom Fong () and Chun-shan Wong
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Chun-shan Wong: Department of Finance, The Chinese University of Hong Kong

No 813, Working Papers from Hong Kong Monetary Authority

Abstract: This paper estimates macroeconomic credit risk of banks¡¦ loan portfolio based on a class of mixture vector autoregressive models. Such class of models can differentiate distributions of default rates and macroeconomic conditions for different market situations and can capture their dynamics evolving over time, including the feedback effect from an increase in fragility back to the macroeconomy. These extensions can facilitate the evaluation of credit risks of loan portfolio based on different credit loss distributions.

Keywords: Stress test; Hong Kong Banking; Credit risk; Mixture autoregressive models; Macroeconomic shocks; Value-at-risk. (search for similar items in EconPapers)
JEL-codes: C15 C32 C53 E37 G21 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2008-10
New Economics Papers: this item is included in nep-ban, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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