Survival Analysis in LGD Modeling

Jiří Witzany, Michal Rychnovský and Pavel Charamza
Additional contact information
Michal Rychnovský: University of Economics, Prague, Czech Republic, http://www.vse.cz/
Pavel Charamza: University of Economics, Prague, Czech Republic, http://www.vse.cz/

No 2010/02, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: The paper proposes an application of the survival time analysis methodology to estimations of the Loss Given Default (LGD) parameter. The main advantage of the survival analysis approach compared to classical regression methods is that it allows exploiting partial recovery data. The model is also modified in order to improve performance of the appropriate goodness of fit measures. The empirical testing shows that the Cox proportional model applied to LGD modeling performs better than the linear and logistic regressions. In addition a significant improvement is achieved with the modified “pseudo” Cox LGD model.

Keywords: credit risk; recovery rate; loss given default; correlation; regulatory capital (search for similar items in EconPapers)
JEL-codes: C14 G21 G28 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2010-02, Revised 2010-02
New Economics Papers: this item is included in nep-ban and nep-ecm
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Survival Analysis in LGD Modeling (2012)
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