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A Two Factor Model for PD and LGD Correlation

Jiří Witzany

Bulletin of the Czech Econometric Society2011article
ABDC C
Weight
0.31

What the paper says

The paper proposes a two systematic factor model to capture a retail portfolio probability of default (PD) and loss given default (LGD) parameters, in particular their mutual correlation. We argue that the standard one factor models standing behind the Basel II formula and used by a number of studies cannot capture well the correlation between PD and LGD on a large (asymptotic) portfolio. The proposed model is implemented on real banking data giving an estimate of a positive PD and LGD correlation implied by the model slightly above 10%.

2 citations

Cite this paper

@article{jiří2011,
  title        = {{A Two Factor Model for PD and LGD Correlation}},
  author       = {Jiří Witzany},
  journal      = {Bulletin of the Czech Econometric Society},
  year         = {2011},
}

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A Two Factor Model for PD and LGD Correlation

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Evidence weight

0.31

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.14 × 0.4 = 0.06
M · momentum0.20 × 0.15 = 0.03
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.