Measuring expected time to default under stress conditions for corporate loans

Mariusz Górajski, Dobromił Serwa () and Zuzanna Wośko ()
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Zuzanna Wośko: SGH Warsaw School of Economics

Empirical Economics, 2019, vol. 57, issue 1, No 2, 52 pages

Abstract: Abstract We present a new measure of extreme credit risk in the time domain, namely the conditional expected time to default (CETD). This measure has a clear interpretation and can be applied in a straightforward way to the analyses of loan performance in time. In contrast to the probability of default, CETD provides direct information on the timing of a potential loan default under some stress scenarios. We apply a novel method to compute CETD using Markov probability transition matrices, a popular approach in the survival analysis literature. We employ the new measure to the analysis of changing credit risk in a large portfolio of corporate loans. CETD changes through time in line with other measures of credit risk and is positively related to output growth.

Keywords: Credit risk; Time to default; Value at risk; Conditional ETD (search for similar items in EconPapers)
JEL-codes: C13 C18 G21 G32 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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Working Paper: Measuring expected time to default under stress conditions for corporate loans (2016)
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DOI: 10.1007/s00181-018-1435-6

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