STRUCTURAL MODELS IN CONSUMER CREDIT
Fabio de Andrade and
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Lyn Thomas: University of Southhampton
Risk and Insurance from EconWPA
We propose a structural credit risk model for consumer lending using option theory and the concept of the value of the consumer’s reputation. Using Brazilian empirical data and a credit bureau score as proxy for creditworthiness we compare a number of alternative models before suggesting one that leads to a simple analytical solution for the probability of default. We apply the proposed model to portfolios of consumer loans introducing a factor to account for the mean influence of systemic economic factors on individuals. This results in a hybrid structural-reduced-form model. And comparisons are made with the Basel II approach. Our conclusions partially support that approach for modelling the credit risk of portfolios of retail credit.
Keywords: Credit risk models; consumer credit; Basel II; structural models (search for similar items in EconPapers)
JEL-codes: C15 C51 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc
Note: Type of Document - pdf; pages: 29
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Journal Article: Structural models in consumer credit (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpri:0407001
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