Survival Analysis in LGD Modeling

24 Pages Posted: 23 Mar 2010

See all articles by Jiri Witzany

Jiri Witzany

University of Economics in Prague

Michal Rychnovsky

University of Economics, Prague

Pavel Charamza

University of Economics, Prague

Date Written: March 18, 2010

Abstract

The paper proposes an application of the survival time analysis methodology to estimations of the Loss Given Default (LGD) parameter. The main advantage of the survival analysis approach compared to classical regression methods is that it allows exploiting partial recovery data. The model is also modified in order to improve performance of the appropriate goodness of fit measures. The empirical testing shows that the Cox proportional model applied to LGD modeling performs better than the linear and logistic regressions. In addition a significant improvement is achieved with the modified “pseudo” Cox LGD model.

Keywords: credit risk, recovery rate, loss given default, correlation, regulatory capital

JEL Classification: G21, G28, C14

Suggested Citation

Witzany, Jiri and Rychnovsky, Michal and Charamza, Pavel, Survival Analysis in LGD Modeling (March 18, 2010). Available at SSRN: https://ssrn.com/abstract=1574452 or http://dx.doi.org/10.2139/ssrn.1574452

Jiri Witzany (Contact Author)

University of Economics in Prague ( email )

Winston Churchilla Sq. 4
Prague 3, 130 67
Czech Republic

Michal Rychnovsky

University of Economics, Prague ( email )

nam. W.Churchilla 4
Prague 3, 130 67
Czech Republic

Pavel Charamza

University of Economics, Prague ( email )

nam. W.Churchilla 4
Prague 3, 130 67
Czech Republic

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