Estimating Probability of Default on Peer to Peer Market – Survival Analysis Approach

Andrija Đurović ()
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Andrija Đurović: Societe Generale Montenegro AD, Montenegro

Journal of Central Banking Theory and Practice, 2017, vol. 6, issue 2, 149-167

Abstract: Arguably a cornerstone of credit risk modelling is the probability of default. This article aims is to search for the evidence of relationship between loan characteristics and probability of default on peer-to-peer (P2P) market. In line with that, two loan characteristics are analysed: 1) loan term length and 2) loan purpose. The analysis is conducted using survival analysis approach within the vintage framework. Firstly, 12 months probability of default through the cycle is used to compare riskiness of analysed loan characteristics. Secondly, log-rank test is employed in order to compare complete survival period of cohorts. Findings of the paper suggest that there is clear evidence of relationship between analysed loan characteristics and probability of default. Longer term loans are more risky than the shorter term ones and the least risky loans are those used for credit card payoff.

Keywords: Peer-to-peer market; Probability of default; Survival analysis; Vintage framework. (search for similar items in EconPapers)
JEL-codes: C41 G11 G23 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:cbk:journl:v:6:y:2017:i:2:p:149-167

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