An Urn-Based Nonparametric Modeling of the Dependence between PD and LGD with an Application to Mortgages

Dan Cheng, Pasquale Cirillo

Research output: Contribution to journalArticleScientificpeer-review

1 Citation (Scopus)
65 Downloads (Pure)

Abstract

We propose an alternative approach to the modeling of the positive dependence between the probability of default and the loss given default in a portfolio of exposures, using a bivariate urn process. The model combines the power of Bayesian nonparametrics and statistical learning, allowing for the elicitation and the exploitation of experts’ judgements, and for the constant update of this information over time, every time new data are available. A real-world application on mortgages is described using the Single Family Loan-Level Dataset by Freddie Mac.
Original languageEnglish
Article number76
Pages (from-to)1-21
Number of pages21
JournalRisks
Volume7
Issue number3
DOIs
Publication statusPublished - Jul 2019

Keywords

  • Dependence
  • Loss given default
  • Probability of default
  • Urn model
  • Wrong-way risk

Fingerprint Dive into the research topics of 'An Urn-Based Nonparametric Modeling of the Dependence between PD and LGD with an Application to Mortgages'. Together they form a unique fingerprint.

Cite this