Stress Testing Banks' Credit Risk Using Mixture Vector Autoregressive Models
23 Pages Posted: 15 Jan 2009
Date Written: October 13, 2008
Abstract
This paper estimates macroeconomic credit risk of banks' loan portfolio based on a class of mixture vector autoregressive models. Such class of models can differentiate distributions of default rates and macroeconomic conditions for different market situations and can capture their dynamics evolving over time, including the feedback effect from an increase in fragility back to the macroeconomy. These extensions can facilitate the evaluation of credit risks of loan portfolio based on different credit loss distributions.
Keywords: Stress test, Hong Kong banking, credit risk, mixture autoregressive models, macroeconomic shocks, value-at-risk
JEL Classification: C15, C32, C53, E37, G21
Suggested Citation: Suggested Citation
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