publication . Article . Other literature type . 2012

Loss given default models incorporating macroeconomic variables for credit cards

Crook, J.; Bellotti, T.;
Open Access
  • Published: 01 Jan 2012 Journal: International Journal of Forecasting, volume 28, pages 171-182 (issn: 0169-2070, Copyright policy)
  • Publisher: Elsevier BV
  • Country: United Kingdom
Abstract
Based on UK data for major retail credit cards, we build several models of Loss Given Default based on account level data, including Tobit, a decision tree model, a Beta and fractional logit transformation. We find that Ordinary Least Squares models with macroeconomic variables perform best for forecasting Loss Given Default at the account and portfolio levels on independent hold-out data sets. The inclusion of macroeconomic conditions in the model is important, since it provides a means to model Loss Given Default in downturn conditions, as required by Basel II, and enables stress testing. We find that bank interest rates and the unemployment level significantl...
Subjects
free text keywords: Loss given default, Credit cards, Basel II, /dk/atira/pure/subjectarea/asjc/1400/1403, Business and International Management
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