TAILIEUCHUNG - Multi-period PD calibration framework for LDP portfolios

The intention of this paper is to propose PD calibration framework for low default portfolios (LDP) that allows producing smooth non-zero PD estimates for any given time horizon within the length of economic cycle. The approach produces PDs that are consistent with two main anchors – PIT and TTC PD estimates and are subject to smooth, monotonic transition between those two anchors. In practise, proposed framework could be applied to risk-based pricing of LDP portfolio deals. Moreover, according to the author opinion, the approach is generally compliant with the new IFRS 9 requirements regarding PD termstructure calibration for provisioning. | Journal of Applied Finance Banking vol. 5 no. 5 2015 63-72 ISSN 1792-6580 print version 1792-6599 online Scienpress Ltd 2015 Multi-period PD Calibration Framework for LDP Portfolios Denis Surzhko1 Abstract The intention of this paper is to propose PD calibration framework for low default portfolios LDP that allows producing smooth non-zero PD estimates for any given time horizon within the length of economic cycle. The approach produces PDs that are consistent with two main anchors - PIT and TTC PD estimates and are subject to smooth monotonic transition between those two anchors. In practise proposed framework could be applied to risk-based pricing of LDP portfolio deals. Moreover according to the author opinion the approach is generally compliant with the new IFRS 9 requirements regarding PD termstructure calibration for provisioning. JEL classification numbers C01 Keywords Probability of default credit risk PD calibration risk-based pricing 1 Introduction Let us assume that some rating system with R rating grades was implemented in a bank T years ago. Our task is to calibrate PD for risk-based pricing purposes given available default statistics. Hereinafter we assume that risk part risk-premium of a loan-pricing system is based on expected losses equal to PD multiplied by loss-given-default value for a transaction LGD . LGD part of risk-premium is not covered by the paper for PD part we assume that PD should be the same for all transactions of a given counterparty. In case of a low default portfolio LDP the most common problems with PD calibration are Unstable high volatile historical default rates by rating grades. Absence of historical defaults in high-grade investment grade rating geades. Absence of enough historical default data for PD term-structure calibration. 1Head of credit risk-model development unit OJSC VTB Bank Article Info Received July 8 2015. Revised July 31 2015. Published online September 1 2015 64 Denis Surzhko Despite these LDP portfolio .

• Tài chính doanh nghiệp
• Probability of default
• Credit risk
• PD calibration
• Risk based pricing
• Multi period PD calibration framework
• Default probability
• IRB approach
• Monte carlo simulation
• Casablanca stock exchange
• KMV model
• Default point
• Distance to default
• Extent of loss
• Corporate customers
• Stress testing
• Low default portfolios
• PD calibration and stress testing
• Gaussian process
• Personal loan default rates
• Macro economic cycle effect
• Agricultural credit risk
• Agribusiness loan
• French banking
• Agricultural loans in a French bank
• PD of a firm
• Use of orthogonal arrays
• Use of orthogonal arrays and design
• Taguchi L9 method
• Debt equity ratio
• Gross profit margin
• Net profit margin
• Time interest earned
• Current ratio
• Probability default
• Basel III
• Government capital injection
• Bank interest margin
• Failure probability
• Reduced margin
• Credit value adjustment
• Wrong way risk
• Right way risk
• Credit risk modeling
• Least square Monte Carlo
• Default time approach (DTA)
• Default probability approach
• Hybrid financial instrument
• Convertible bond
• Convertible underpricing
• Convertible arbitrage
• Default time approach
• Jump diffusion
• Bernoulli Model
• Correlated Defaults
• Return Swaps
• Spread Products
• Debt Obligations
• danh mục tín dụng
• luận văn
• chiến lược kinh doanh
• ý tưởng kinh doanh
• tài liệu kinh doanh
• tài chính doanh nghiệp
• Stress test
• The retail portfolio
• Stress test methods
• Implementation of the stress test methods