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Loss given default adjusted workout processes for leases

Patrick Miller and Eugen Töws

Journal of Banking & Finance, 2018, vol. 91, issue C, 189-201

Abstract: Employing defaulted leases, this study divides the loss given default (LGD) into two parts. So far, LGD has been regarded as a holistic measure of risk. However, considering the specifics of leases, we distinguish between asset-related and miscellaneous revenues of the workout process in order to calculate component LGDs. We introduce a multi-step approach to estimate the overall LGD of leases, based on its economic composition. The performance is assessed out-of-sample and out-of-time. We find that our approach generates stable and accurate estimations. Moreover, using the estimated component LGDs, we obtain valuable information regarding the debt collection procedure that lead to monetary advantages for the lessor.

Keywords: Loss given default; Random forest; Economic model; Leasing; Workout process; Forecasting (search for similar items in EconPapers)
JEL-codes: C14 C38 C51 G17 G28 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:jbfina:v:91:y:2018:i:c:p:189-201