publication . Article . 2013

The economy and loss given default: evidence from two UK retail lending data sets

Mindy Leow; Christophe Mues; Lyn C. Thomas;
Open Access
  • Published: 01 Jan 2013 Journal: Journal of the Operational Research Society, volume 65, issue 3 March, pages 363-375
  • Country: United Kingdom
Abstract
Loss given default (LGD) models predict losses as a proportion of the outstanding loan, in the event a debtor goes into default. The literature on corporate sector LGD models suggests LGD is correlated to the economy and so changes in the economy could translate into different predictions of losses. In this work, the role of macroeconomic variables in loan-level retail LGD models is examined by testing the inclusion of macroeconomic variables in two different retail LGD models: a two-stage model for a residential mortgage loans data set and an ordinary least squares model for an unsecured personal loans data set. To improve loan-level predictions of LGD, indicat...
Subjects
free text keywords: Marketing, Management Science and Operations Research, Strategy and Management, Management Information Systems, credit risk modelling, macroeconomic variables, retail loans, Ordinary least squares, Interest rate, media_common.quotation_subject, media_common, Loan, Economy, Loss given default, Economics, Data set, Debtor, Mortgage loan, Business sector
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