Probability of Default: A Modern Calibration Approach

Stefano Bonini () and Giuliana Caivano ()
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Stefano Bonini: University of Rome “Tor Vergata”
Giuliana Caivano: University of Rome “Tor Vergata”

A chapter in Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2014, pp 41-44 from Springer

Abstract: Abstract An extensive academic and practitioner’s literature exists on rating models development with well-structured statistical methods, however these models do not estimate PDs aligned with the economic scenario, then it is necessary a calibration. During the last years the effect of not well calibrated models has been observed on the credit market: actually they show a high level of procyclicality that let them loss market credibility and banking usability. The aim of this paper is to show a modern structured calibration approach, based on Bayesian techniques, taking into consideration specific economic factors. The calibration approach has been applied on real data of a Corporate portfolio of a top tier European Bank and a new calibration test, adjusted by the economic cycle, has been performed.

Keywords: Rating models; Credit risk modeling; Bayesian econometric methods; Economic cycle (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-319-05014-0_9

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DOI: 10.1007/978-3-319-05014-0_9

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