Systematic credit risk in securitised mortgage portfolios

Yongwoong Lee, Daniel Rösch and Harald Scheule

Journal of Banking & Finance, 2021, vol. 122, issue C

Abstract: This study analyses the level of systematic risk for US mortgage portfolio securitisations based on the variation of default rates which cannot be explained by observed deterministic factors. Systematic risk is decomposed into general systemic risk, rating-class-specific systematic risk and their covariance structure. General systematic risk sensitivities increase from lower rating classes to medium rating classes and decreases to higher rating classes. Rating-class-specific systematic risk shows an opposite pattern. The methodology provides for more accurate probability of default and Value-at-Risk forecasts.

Keywords: Asset correlation; Diversification; Mortgage portfolio; Probability of default; Rating classes; Securitisation; State space model; Systematic risk (search for similar items in EconPapers)
JEL-codes: C51 G20 G28 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:122:y:2021:i:c:s0378426620302582

DOI: 10.1016/j.jbankfin.2020.105996

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