Default risk: Poisson mixture and the business cycle

Chiara Pederzoli ()

Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) from Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi"

Abstract: As emphasized by the introduction of Basel II, the macroeconomic factors strongly affect credit risk variables. In order to account for the business cycle in a forward-looking way, a macroeconomic forecast can be introduced in the estimation of credit risk variables. This work proposes to model the distribution of the default rate as a mixture distribution which accounts for a binary representation of the business cycle: the distribution changes according to the estimated probability of recession over the credit horizon considered.

Keywords: default risk; Poisson mixture; business cycle (search for similar items in EconPapers)
JEL-codes: C1 E3 G21 (search for similar items in EconPapers)
Pages: pages 14
Date: 2007-06
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Citations: View citations in EconPapers (43)

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