Questions tagged [default-probability]
The default-probability tag has no usage guidance.
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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 ...
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44 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 ...
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2answers
107 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 ...
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1answer
57 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 ...
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1answer
127 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 ...
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19 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, ...
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71 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
$$\...
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1answer
40 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 ...
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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}_\...
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1answer
100 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/...
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24 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 ...
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285 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 ...
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1answer
181 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/...
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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 ...
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0answers
41 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 ...
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1answer
80 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 ...
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1answer
95 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 ...
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1answer
151 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...
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1answer
150 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-...
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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 ...
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0answers
131 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 ...
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3answers
304 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 ...
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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 ...
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1answer
437 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 ...
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0answers
39 views
Concavity of Cumulative Accuracy Profile curve
I am writing my thesis for the default probability estimation in low default portfolios. One way to estimate the probability of default is from the Cumulative Accuracy Profile (CAP) curve (Marco Van ...
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2answers
235 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 ...
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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
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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 ...
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0answers
38 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
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1answer
152 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 ...
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1answer
110 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'...
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47 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
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1answer
193 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 ...
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1answer
189 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 \...
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1answer
120 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?
$$ LGD = \frac{\Phi \left [ \Phi^{-1}(DR) - \frac{\Phi^{-1}(PD)-\Phi^{-1}(PD\cdot ...
2
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3answers
169 views
PD and LGD for ECL calculations needs to be time dependent?
I'm studying the implementation of an expected credit loss (ECL) model. I have encountered a complication. Do I need to calculate a probability of default (PD) and loss given default (LGD) with a time ...
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1answer
904 views
Implied probability of default (CDS spread)
After some googling, I have made some progress but not enough to come to a conclusion, so here we go:
Given that the CDS spread of a counterparty is 100bp (flat across time) and that the risk free ...
2
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1answer
593 views
PD calibration using Bayes formula
When calculating ECLs for loans under IFRS 9, one of the requirements is that the PD estimates have to be Point-in-time ($PD_{PIT}$) rather than through-the-cycle ($PD_{TTC}$).The setting is as ...
2
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1answer
205 views
Reproduce CDS Index Default Probability via Tranche [0,100] Probability
The tranche survival probability up to time $t$ between attachment $K_1$ and detachment $K_2$ is defined as
$$Q(t,K_1,K_2) \quad=\quad 1 - \mathbb{E}[L(t,K_1,K_2)]$$
with tranche loss function
$$L(...
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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 ...
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0answers
96 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:
...
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0answers
204 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(...
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0answers
102 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):=\...
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0answers
66 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 ...
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2answers
350 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 ...
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73 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 ...
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1answer
310 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 ...
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3answers
356 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 $p = 0.01$. ...
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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 ...
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58 views
Gaussian copula: contract price
The hazard rates for A and B are 1% and 2% respectively. A contract pays you $1 if A defaults earlier than B. What is the correlation that minimizes the price of the contract?
I have not studied the ...
