A Consumer Credit Risk Structural Model Based on Affordability: Balance at Risk

18 Pages Posted: 26 Mar 2016 Last revised: 5 Apr 2016

See all articles by Marcelo Perlin

Marcelo Perlin

Escola de Administração - UFRGS

Marcelo Righi

Universidade Federal do Rio Grande do Sul (UFRGS)

Tiago Filomena

Universidade Federal do Rio Grande do Sul (UFRGS)

Multiple version iconThere are 2 versions of this paper

Date Written: March 24, 2016

Abstract

This paper introduces an approach designed for personal credit risk. We define a structural model related to the financial balance of an individual, allowing for cashflow seasonality and deterministic trends in the process. This formulation is best suited for short-term loans. Using this model, we develop risk measures associated with the probability of default conditional on time. We illustrate empirical applications by estimating an empirical model using simulated data and, on the basis of this model, find yield rate and maturity values that maximize the expected profit from a short-term debt contract.

Keywords: balance at risk, credit risk, personal finance

JEL Classification: D1, G21, G21

Suggested Citation

Perlin, Marcelo and Righi, Marcelo and Filomena, Tiago, A Consumer Credit Risk Structural Model Based on Affordability: Balance at Risk (March 24, 2016). Available at SSRN: https://ssrn.com/abstract=2754375 or http://dx.doi.org/10.2139/ssrn.2754375

Marcelo Perlin (Contact Author)

Escola de Administração - UFRGS ( email )

Porto-Alegre RS
Brazil

HOME PAGE: http://sites.google.com/site/marceloperlin/

Marcelo Righi

Universidade Federal do Rio Grande do Sul (UFRGS) ( email )

Washington Luis, 855
Porto Alegre, Rio Grande do Sul 90010-460
Brazil

Tiago Filomena

Universidade Federal do Rio Grande do Sul (UFRGS) ( email )

Av. Carlos Gomes 1111
Porto Alegre, Rio Grande do Sul 90480-004
Brazil

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