Recovery Rates in Consumer Lending: Empirical Evidence and Model Comparison
19 Pages Posted: 23 Oct 2013
Date Written: October 21, 2013
The bank regulation embodied in the Basel II Accord has opened-up a new era in estimating recovery rates or complementary loss given default in retail lending credit evaluation process. In this paper we investigate the properties of survival analysis models applied for recovery rates in order to predict loss given default for retail lending. We compare the results to standard techniques such as linear and logistic regressions and discuss the pros and cons of the respective methods. The study is performed on a real dataset of a major Czech bank.
Keywords: recovery rates, loss given default, retail lending, survival analysis
JEL Classification: G21, G28, C14
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