Questions tagged [default-probability]
The default-probability tag has no usage guidance.
106
questions
6
votes
2answers
311 views
Quarterly Survival rate given there is a Quarterly Probability of Default
I am trying to calculate the Quarterly Marginal PD. I have calculated it as given in the below image but I am thinking about whether the Survival rate calculation is making sense or not.
The ...
0
votes
0answers
19 views
Mapping bank credit score to PD
I currently work in a bank so I do have some of the required information that is my bank (internal) assigned credit score and the calculated probability of default for every company.
My question is ...
0
votes
0answers
29 views
Default rate short majurity
What is the best way of measuring default rates for a portfolio which contains mostly loans which are either 30, 60 or 90 days term?
Normally I use the following methodology
Look at all loans which ...
1
vote
0answers
47 views
Why does Basel require Pooled PDs?
Since Basel II requires banks to utilize pooled PDs per rating grade / segment, I wonder why exactly. Via a logistic regression you can directly estimate an obligors PD, why the extra step to pool ...
0
votes
2answers
108 views
Beginner's resources on copulas and impact of correlation on loan defaults?
I'm hoping this question is not too banal or off-topic for this forum.
Could you please help me understand / point me towards some resources on the impact of correlation on loan defaults?
First ...
0
votes
1answer
64 views
Generalized Linear Mixed Model (GLMM) for the probability of default of corporates
I work in the financial industry and we want to implement an internal rating model for our clients (think corporates large or mid , banks etc. some listed on an exchange some others not).
We want to ...
-1
votes
1answer
152 views
Survival probabilities starting from CDS spreads
How is that possible to get survival probabilities starting from CDS spread?
Could you please provide me with a demonstration?
What is more, is that true that CDS Zero type is necessary so as to get ...
0
votes
0answers
20 views
Variable transformation for probit regression model
I am trying to understand a credit rating model which is used in my company to assess company customers with large exposures. This model is provided by Moody's and assigns grades (similar to Aaa, Aa1, ...
1
vote
0answers
72 views
Marginal default distribution when default intensity is log-normal
I'm interested in the stochastic process followed by the marginal default density $e^{-\int_0^th(s)ds}h(t)$ in the case where the default intensity $h(t)$ follows a log-normal process.
Assuming
$$\...
1
vote
1answer
48 views
Where can I find recent tables with the average cumulative default rates?
I'm mostly interested in Moody's average corporate cumulative default rates, possibly in 2020 or the latest version. I tried to take a look at Moody's website but I am still in trouble. The latest ...
0
votes
0answers
30 views
Measurability of contingent claim in State-variable approach
I'd like to know, if we have the filtrations $\mathbb{F}$ and $\mathbb{G}$ with $\mathcal{F}_t\subset\mathcal{G}_t\subset \mathcal{F}_t\vee \sigma(\eta)$, for $\eta$ being independent of $\mathcal{F}_\...
1
vote
1answer
119 views
Implied funding/repo rates from Credit Default Swaps
One of the differences between a CDS and a bond is the funded vs unfounded nature of the two. Given that is the case, at least some portion of the CDS-Bond basis should be driven by an implied repo/...
0
votes
0answers
25 views
How to compute a zero spread for unexpected loss
I have to discount a cash flows of mezzanine and junior note of NPL's securization, so the discount curve have to include a zero spread for unexpected loss, could you suggest me a proxy to estimate ...
0
votes
0answers
393 views
How to convert PIT PD to TTC PD
I am currently trying to estimate TTC PDs from PIT PDs and I am looking for methods of conversion.
I have a data set containing loans that defaultet or not. For each loan there is an application FICO ...
1
vote
1answer
197 views
Calculation of the Probability of Default
I am reading a book from Tiziano Bellini namely IFRS 9 and CECL Credit Risk Modelling and Validation, to understand the default probability calculation (link : https://www.sciencedirect.com/science/...
1
vote
0answers
29 views
Measuring stressed credit risk
What are good ways of measuring stressed credit risk specifically?
I know usually we just "stress" all market conditions, but are there credit-risk specific things we can do?
Or is it just a ...
0
votes
0answers
42 views
Default Probability estimation
Can you please provide some workout references on how to estimate the Default probability for Wholesale portfolio?
How does it defer from Retail portfolio case?
I ...
1
vote
1answer
94 views
Estimation of the probability of default for the expected loss model (IFRS9)
Hey guys I have to do a calculation for my BA. More precisely, I have to determine the expected loss of a company.
For this I need the probability of default.
What options do I have to determine this ...
1
vote
1answer
109 views
IFRS9 - Lifetime Expected Credit Losses (ECL) Probability of Default (PD) - how do they get distributed in quarters?
Let's assume we calculate a Lifetime ECL of 5 years. How do we then distribute the expected losses in each of the following 20 quarters? Do we just divide the lifetime ECL by 20 and calculate the ...
1
vote
1answer
193 views
Probability of Default calculation
I am looking for some good resources with handful of workout examples, on the modelling of the Probability of Default under IFRS9...
1
vote
1answer
161 views
Estimation of Default Probability using Merton's model
There is an explanation of Risk Neutral Default Probability using a Firm's Equity price here - https://www.mathworks.com/help/risk/default-probability-using-the-...
1
vote
0answers
39 views
Estimation of Default Probability from Bond
Typically the formula to calculate the default probability from corporate Bond looks like
$\frac{S}{1-R}$
where $S$ is the ...
0
votes
0answers
132 views
How to apply Kalman Filter to GDP data?
Once reverted the Merton/Vasicek formula I could compute the $PD^{PIT}$ for IFRS9 as
$PD^{PIT}_i(z) = \Phi \left( \phi^{-1}(PD^{TTC}_i) \sqrt{1-\rho_i} + \sqrt{\rho_i}z\right)$
The main issue is to ...
3
votes
3answers
339 views
Bond prices and probability of default
We learn in Finance 101 that the price of a bond is the present value of future cash flows. There is no mention of default risk. Still, bond prices move each day, without a change in the payment ...
1
vote
0answers
54 views
Longer / Shorter period loss
I am struggling on I think a quite simple issue.
Let's take a portfolio of 100 loans.
If we assume they are independent, each loan’s default is a Bernoulli with parameter $p=0.01$ over a certain time ...
4
votes
1answer
517 views
Use of PIT vs TTC PD in a Merton one-factor model
Under one-factor Merton framework, like Basel, you use unconditional PDs as input of the portfolio model and this "unconditional" means it is a TTC-PD.
Given a i-th borrower, the default ...
3
votes
2answers
271 views
CVA Probability of default
I have to estimate CVA for an exotic option. I used Monte Carlo method to price the option with 1000 number of simulation, maturity = 1 year, and 360 time steps. So I have two questions:
I've read in ...
1
vote
0answers
36 views
Definition of defaults via unobserved assets
Sorry if my question is a bit basic. I am considering the default model as used eg in Vasicek (I think this goes back at least to Merton, though) that looks at an unobserved quantity modeling the ...
2
votes
1answer
78 views
A model for probability of credit rating change for a single issuer
I am looking to model the probability of a single issuer upgrading or downgrading it's credit rating at some time using historical data. I have done research and everything I have found so far are for ...
0
votes
0answers
40 views
Credit Migration: Risk [duplicate]
Hi I am given two tables of two tables showing data about fictional corporate business partners and relevant credit risk data – ID, rating, probability of default (PD, defined by rating), loss given ...
2
votes
1answer
163 views
CreditRisk+ spreadsheet implementation
I'm looking for an Excel spreadsheet where the CreditRisk+ model is implemented by means of a simple toy example, like the one the linked paper is referring to. If that spreadsheet is unavailable, I ...
0
votes
1answer
117 views
MATLAB - Probability Default with CDS Bootstrapping
I have not understood which "zerorati" I must use for the bootstrap of the PD from the curve of the CDS spreads. Can you help me please? I consulted O'Kane (2008) and Brigo and Mercurio (2006), but I'...
0
votes
0answers
62 views
Derivation of the 99.9% CI to a 1 in a 1000 year event
Keen to understand how BASEL derived the 1 in a 1000 year event from the CI 99.9%:
The confidence level is fixed at 99.9% (0.999) (i.e. a bank is expected to suffer losses that exceeds its capital ...
2
votes
1answer
230 views
Marginal Probability of Default for Credit Risk
I am working on a model to predict credit defaults. We have worked out PD's of clients using logistic regression.
When calculating the default amount, we have to convert PDs to marginal PDs. The ...
1
vote
1answer
200 views
PDs for negative credit spreads
My question is about credit spreads and the corresponding probability of default (PD).
One of the most simple relations between credit spreads and PDs is (see e.g. ch7 in Malz(2011))
$$
PD \approx \...
1
vote
1answer
125 views
Linking PD and LGD
I am trying to solve the equation for PD but struggling to bring it to the LHS. Any ideas as to how I can do that?
$$ LGD = \frac{\Phi \left [ \Phi^{-1}(DR) - \frac{\Phi^{-1}(PD)-\Phi^{-1}(PD\cdot ...
2
votes
3answers
175 views
PD and LGD for ECL calculations needs to be time dependent?
I'm studying the implementation of an expected credit loss (ECL) model. I have encountered a complication. Do I need to calculate a probability of default (PD) and loss given default (LGD) with a time ...
1
vote
1answer
1k views
Implied probability of default (CDS spread)
After some googling, I have made some progress but not enough to come to a conclusion, so here we go:
Given that the CDS spread of a counterparty is 100bp (flat across time) and that the risk free ...
2
votes
1answer
702 views
PD calibration using Bayes formula
When calculating ECLs for loans under IFRS 9, one of the requirements is that the PD estimates have to be Point-in-time ($PD_{PIT}$) rather than through-the-cycle ($PD_{TTC}$).The setting is as ...
2
votes
1answer
208 views
Reproduce CDS Index Default Probability via Tranche [0,100] Probability
The tranche survival probability up to time $t$ between attachment $K_1$ and detachment $K_2$ is defined as
$$Q(t,K_1,K_2) \quad=\quad 1 - \mathbb{E}[L(t,K_1,K_2)]$$
with tranche loss function
$$L(...
1
vote
0answers
22 views
Are Muni REVENUE bonds secured or can the local gov. use the revenues for other purposes not paying the bond holders if its going bankrupt? [closed]
Municipal bonds are of two kinds: GO (General Obligation) Bonds or Revenue Bonds. My question on Revenue Bonds is: are the revenues from the specific project secured or can the local government use ...
3
votes
0answers
105 views
Using transaction data to predict default of the customer
I am trying to build a prediction model that utilize the huge transaction database of all the customers of a bank. My dataset currently looks like this:
...
1
vote
0answers
219 views
Normal default probability vs forward default probability/conditional default
is the diagram correct in calculating foward PD(conditional default) ? Or should the formula be
Probability of default = probability of survival x forward PD
Which of this is equal to marginal PD(...
1
vote
0answers
105 views
Credit spread model
Let $c(t,T):=-\frac{1}{T-t}[\mathrm{ln}(P_1(t,T))-\mathrm{ln}(P_0(t,T))]$, with:
$c$ measure of how a company is prone to fail;
$P_0(t,T):=e^{-r(T-t)}$ price of no-defaultable bond.
$P_1(t,T):=\...
0
votes
0answers
69 views
Poisson distribution and counting process
Let $\begin{Bmatrix}
N_t
\end{Bmatrix}_{(t\in[0,T])}:=\mathbb{I}_{(\tau \leq T)}:=k, \forall t \in [\tau_{k}\leq \tau_{k+1})\sim \mathrm{Po}(\lambda_{t}:=\int_{0}^{t}\lambda_{s}ds<+\infty)$ a ...
1
vote
2answers
369 views
CDS, default probability and bond price
When we calculate the implied default probabilities from CDS, can we use that information to price bonds?
I am getting familiar with Fixed Income. I saw textbooks using implied default probabilities ...
1
vote
0answers
74 views
Extracting Risk Neutral Default Probabilities using Option Adjusted Bond Prices
I am currently in a project trying to quantify default risk premia for US Corporate Bonds. The data I have consists of bond prices, and other information (i.e. YTM, OAS, Effective Duration, Maturity ...
0
votes
1answer
341 views
PD for ECL modelling
I am trying to understand the interrelations between the marginal, cumulative and conditional PDs (Probabilities of Default) when modelling ECLs (Expected Credit Losses). My current understanding is ...
2
votes
3answers
359 views
Portfolio - Default Probability
Suppose we want to identify the frequency of default on a portfolio with a 1000 loans. In the independence case, each firm’s default process follows a Bernoulli distribution with parameter $p = 0.01$. ...
1
vote
0answers
45 views
How to convert a vector of bonds ZC Spreads into default spreads
If we consider a set of bonds issued by a given entity that are quoted on the market, one can get for each of those bonds a ZC spread on top of reference swap curve (say the bonds are in USD and so we ...
