Modeling default correlation in a US retail loan portfolio

Magdalena Pisa, Dennis Bams and Christian Wolff

LSF Research Working Paper Series from Luxembourg School of Finance, University of Luxembourg

Abstract: This paper generalizes the existing asymptotic single-factor model to address issues related to industry heterogeneity, default clustering and capital requirement s parameter uncertainty in US retail loan portfolios. We argue that the Basel II capital requirement overstates the riskiness of small businesses even with prudential adjustments.Moreover, our estimates show that both location and spread of loss distribution bare uncertainty.Their shifts over the course of the recent crisis have important risk management implications. The results are based on a unique representative dataset of US small businesses from 2005 to 2011 and give fundamental insights into the US economy.

Keywords: Retail credit risk; default correlation; multiple defaults; generalized method of moments (search for similar items in EconPapers)
JEL-codes: C51 E44 G32 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-ban and nep-rmg
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Citations: View citations in EconPapers (7)

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Working Paper: Modeling default correlation in a US retail loan portfolio (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:crf:wpaper:12-19

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