Estimating Lifetime Expected Credit Losses Under IFRS 9

22 Pages Posted: 4 Apr 2016 Last revised: 5 Mar 2017

See all articles by Xin Xu

Xin Xu

Unisys Machine Learning and Advanced Analytics Services

Date Written: August 20, 2016

Abstract

We present an estimation framework of lifetime expected credit losses in accordance with IFRS 9. Rooted in the literature of estimating multi-period default probability, the framework rests on a rigorous definition of "term structure of default probability" and conditional expectation given forward-looking economic dynamics. It is easy to implement and allows banks to adopt simplified and sophisticated modeling strategies alike. We consider numerous modeling strategies within this framework, and demonstrate examples of implementation.

Keywords: IFRS 9, Lifetime Expected Credit Losses, Term Structure of Probability of Default, Multi-period Expected Credit Losses

JEL Classification: C41, G21, G32, M48

Suggested Citation

Xu, Xin, Estimating Lifetime Expected Credit Losses Under IFRS 9 (August 20, 2016). Available at SSRN: https://ssrn.com/abstract=2758513 or http://dx.doi.org/10.2139/ssrn.2758513

Xin Xu (Contact Author)

Unisys Machine Learning and Advanced Analytics Services ( email )

PO Box 288
Concord West, NSW 2138
Australia

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