Probability of default in collateralized credit operations

Jose Angelo Divino and Líneke Clementino Sleegers Rocha

The North American Journal of Economics and Finance, 2013, vol. 25, issue C, 276-292

Abstract: The goal of this paper is to identify the major determinants of the probability of default in a mortgage credit operation, which is backed by collateral. We use an exclusive data set with 268,036 loan contracts and apply logistic regression and Cox proportional hazards model in the estimation. The discriminatory power of the estimated models is analyzed by several accuracy indicators. The inclusion of time-dependent macroeconomic variables in addition to covariates representing characteristics of the contract and individuals improved the overall performance. Logistic regression showed a higher discriminatory power than Cox proportional hazards model according to all accuracy indicators. It is worth mentioning the negative relationship between the probability of default and the economy base interest rate. Decreases in the base interest rate lead banks to lose revenue from treasury operations and expand credit operations to compensate the loss. This strategy brings individuals with a higher probability of default to the financial market.

Keywords: Probability of default; Logistic regression; Survival analysis; Collateral; Accuracy indicators (search for similar items in EconPapers)
JEL-codes: C25 C58 G33 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:25:y:2013:i:c:p:276-292

DOI: 10.1016/j.najef.2012.06.015

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