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Downturn Loss Given Default: Mixture distribution estimation

Calabrese, Raffaella (2014) 'Downturn Loss Given Default: Mixture distribution estimation.' European Journal of Operational Research, 237 (1). pp. 271-277. ISSN 03772217

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Abstract

The internal estimates of Loss Given Default (LGD) must reflect economic downturn conditions, thus estimating the “downturn LGD”, as the new Basel Capital Accord Basel II establishes. We suggest a methodology to estimate the downturn LGD distribution to overcome the arbitrariness of the methods suggested by Basel II. We assume that LGD is a mixture of an expansion and recession distribution. In this work, we propose an accurate parametric model for LGD and we estimate its parameters by the EM algorithm. Finally, we apply the proposed model to empirical data on Italian bank loans

Item Type: Article
Uncontrolled Keywords: Downturn LGD; Mixture model; EM algorithm; Mixed random variable
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Users 161 not found.
Date Deposited: 24 Oct 2014 14:57
Last Modified: 13 Nov 2015 16:33
URI: http://repository.essex.ac.uk/id/eprint/11175

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