Measuring expected time to default under stress conditions for corporate loans

Mariusz Górajski, Dobromił Serwa () and Zuzanna Wośko ()

No 237, NBP Working Papers from Narodowy Bank Polski

Abstract: We present a new measure of extreme credit risk in the time domain, namely the conditional expected time to default (CETD). This measure has a clear interpretation and can be applied in a straightforward way to the analyses of loan performance in time. In contrast to the probability of default, CETD provides direct information on the timing of a potential loan default under some stress scenarios. We apply a novel method to compute CETD using Markov probability transition matrices, a popular approach in survival analysis literature. We employ the new measure to the analysis of changing credit risk in a large portfolio of corporate loans.

Keywords: credit risk; time to default; value at risk; conditional ETD (search for similar items in EconPapers)
JEL-codes: C13 C18 G21 G32 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-ban and nep-rmg
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Journal Article: Measuring expected time to default under stress conditions for corporate loans (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:237

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