Benchmarking the loss given default parameter for mortgage loan portfolios under stress

Christian Greve and Lutz Hahnenstein

Journal of Credit Risk

Abstract: ABSTRACT In this paper, we analyze the impact of a decline in property prices that leads to;stressed recovery rates for collateral on the loss given default (LGD) parameter in portfolios of mortgage loans. After discussing the shape of a portfolio's loan-to value;(LTV) distribution, we prove that the average LGD's stress sensitivity depends;on the LTV distribution, and we derive a closed-form solution for portfolio LGD;under the assumption of beta-distributed LTV ratios. Further, we present numerical;evidence that the relationship between LTV distribution and portfolio LGD is crucial;for understanding the stress resilience of banks involved in the mortgage business.;Our formula appears to be a meaningful starting point for benchmarking analyses by;regulators, rating agencies and risk managers.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-credit-risk/247422 ... tfolios-under-stress (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ1:2474225

Access Statistics for this article

More articles in Journal of Credit Risk from Journal of Credit Risk
Bibliographic data for series maintained by Thomas Paine ().