Stress testing of probability of default of individuals

Arbeitspapier

This paper introduces a model for stress testing of probability of default of individuals. The model rests on assumption that the individual defaults if his savings fall below zero. The probability of default is then described as a function of several macroeconomic indicators such as wages, unemployment and interest rates. Stress testing is carried out by applying exogenous stress scenarios for development of these indicators. The model implies that sensitivity of probability of default to the stress is mainly driven by Installment to Income Ratio and for mortgages also by loan maturity. Hence Installment to Income ratio is suggested as the appropriate tool to manage credit risk of retail portfolios.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IES Working Paper ; No. 11/2008

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Business Fluctuations; Cycles ; Macroeconomics: Consumption; Saving; Wealth
• Subject: banking ; credit risk ; stress testing ; probability of default ; Bankgeschäft ; Kreditrisiko ; Makroökonomischer Einfluss ; Statistischer Test

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kadeřábek, Petr ; Slabý, Aleš ; Vodička, Josef
• Event: Veröffentlichung
• (who): Charles University in Prague, Institute of Economic Studies (IES)
• (where): Prague
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/83375
• Last update: 10.03.2025, 11:41 AM CET