Measuring Expected Time to Default Under Stress Conditions for Corporate Loans

National Bank of Poland Working Paper No. 237

36 Pages Posted: 7 Jul 2016

See all articles by Mariusz Górajski

Mariusz Górajski

University of Lodz

Dobromil Serwa

National Bank of Poland; Warsaw School of Economics (SGH)

Zuzanna Wośko

National Bank of Poland; Warsaw School of Economics (SGH) - Institute of Econometrics

Date Written: April 19, 2016

Abstract

We present a new measure of extreme credit risk in the time domain, namely the conditional expected time to default (CETD). This measure has a clear interpretation and can be applied in a straightforward way to the analyses of loan performance in time. In contrast to the probability of default, CETD provides direct information on the timing of a potential loan default under some stress scenarios. We apply a novel method to compute CETD using Markov probability transition matrices, a popular approach in survival analysis literature. We employ the new measure to the analysis of changing credit risk in a large portfolio of corporate loans.

Keywords: credit risk, time to default, value at risk, conditional ETD

JEL Classification: G21, G32, C13, C18

Suggested Citation

Górajski, Mariusz and Serwa, Dobromil and Wośko, Zuzanna, Measuring Expected Time to Default Under Stress Conditions for Corporate Loans (April 19, 2016). National Bank of Poland Working Paper No. 237, Available at SSRN: https://ssrn.com/abstract=2804986 or http://dx.doi.org/10.2139/ssrn.2804986

Mariusz Górajski (Contact Author)

University of Lodz ( email )

Ulica Prezydenta Gabriela
Narutowicza 65 str.
Lodz, 90-131
Poland

Dobromil Serwa

National Bank of Poland ( email )

00-919 Warsaw
Poland

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

Zuzanna Wośko

National Bank of Poland ( email )

00-919 Warsaw
Poland

Warsaw School of Economics (SGH) - Institute of Econometrics ( email )

Niepodleglosci 164
Warsaw, 02-554
Poland

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