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Least Impulse Response Estimator for Stress Test Exercises

Christian Gourieroux () and Yang Lu ()
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Christian Gourieroux: University of Toronto and Toulouse School of Economics

No 2019-05, CEPN Working Papers from Centre d'Economie de l'Université de Paris Nord

Abstract: We introduce new semi-parametric models for the analysis of rates and proportions, such as proportions of default, (expected) loss-given-default and credit conversion factor encountered in credit risk analysis. These models are especially convenient for the stress test exercises demanded in the current prudential regulation. We show that the Least Impulse Response Estimator, which minimizes the estimated effect of a stress, leads to consistent parameter estimates. The new models with their associated estimation method are compared with the other approaches currently proposed in the literature such as the beta and logistic regressions. The approach is illustrated by both simulation experiments and the case study of a retail P2P lending portfolio.

Keywords: Basel Regulation; Stress Test; (Expected) Loss-Given-Default; Impulse Response; Credit Scoring; Pseudo-Maximum Likelihood; LIR Estimation; Beta Regression; Moebius Transformation. (search for similar items in EconPapers)
JEL-codes: C51 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ore and nep-rmg
Date: 2019-03
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Journal Article: Least impulse response estimator for stress test exercises (2019) Downloads
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