 Transition matrix models of consumer credit ratingsMadhur Malik and Lyn C. Thomas International Journal of Forecasting, 2012, vol. 28, issue 1, 261-272 Abstract: Although the corporate credit risk literature includes many studies modelling the change in the credit risk of corporate bonds over time, there has been far less analysis of the credit risk for portfolios of consumer loans. However, behavioural scores, which are calculated on a monthly basis by most consumer lenders, are the analogues of ratings in corporate credit risk. Motivated by studies of corporate credit risk, we develop a Markov chain model based on behavioural scores for establishing the credit risk of portfolios of consumer loans. Although such models have been used by lenders to develop models for the Basel Accord, nothing has been published in the literature on them. The model which we suggest differs in many respects from the corporate credit ones based on Markov chains — such as the need for a second order Markov chain, the inclusion of economic variables and the age of the loan. The model is applied using data on a credit card portfolio from a major UK bank. Keywords: Markov chain; Credit risk; Logistic regression; Credit scoring (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:28:y:2012:i:1:p:261-272 DOI: 10.1016/j.ijforecast.2011.01.007 Access Statistics for this article International Journal of Forecasting is currently edited by R. J. Hyndman More articles in International Journal of Forecasting from Elsevier |
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