Accuracy of mortgage portfolio risk forecasts during financial crises
Daniel Rösch and
European Journal of Operational Research, 2016, vol. 249, issue 2, 440-456
This paper explores whether factor based credit portfolio risk models are able to predict losses in severe economic downturns such as the recent Global Financial Crisis (GFC) within standard confidence levels. The paper analyzes (i) the accuracy of default rate forecasts, and (ii) whether forecast downturn percentiles (Value-at-Risk, VaR) are sufficient to cover default rate outcomes over a quarterly and an annual forecast horizon. Uninformative maximum likelihood and informative Bayesian techniques are compared as they imply different degrees of uncertainty.
Keywords: Bayesian estimation; Maximum likelihood estimation; Model risk; Mortgage; Value-at-risk (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:249:y:2016:i:2:p:440-456
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