Modelling LGD for unsecured personal loans: decision tree approach

A Matuszyk, C Mues and L C Thomas
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A Matuszyk: University of Southampton
C Mues: University of Southampton
L C Thomas: University of Southampton

Journal of the Operational Research Society, 2010, vol. 61, issue 3, 393-398

Abstract: Abstract The New Basel Accord, which was implemented in 2007, has made a significant difference to the use of modelling within financial organisations. In particular it has highlighted the importance of Loss Given Default (LGD) modelling. We propose a decision tree approach to modelling LGD for unsecured consumer loans where the uncertainty in some of the nodes is modelled using a mixture model, where the parameters are obtained using regression. A case study based on default data from the in-house collections department of a UK financial organisation is used to show how such regression can be undertaken.

Keywords: Basel II; consumer credit; LGD (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (20)

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DOI: 10.1057/jors.2009.67

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