Macroeconomic Stress-Testing of Mortgage Default Rate Using a Vector Error Correction Model and Entropy Pooling
Insurance and Risk Management, Vol. 83, Number 3-4, pp. 115-133, 2016
20 Pages Posted: 9 Jul 2016 Last revised: 17 Nov 2017
Date Written: July 7, 2016
We propose a methodology to perform macroeconomic stress-testing on the probability of default of a given borrowers’ population (i.e., aggregate probability of default) through simulation from a vector error correction model and entropy pooling (Meucci, 2008).
Keywords: mortgage default probability, entropy pooling, macroeconomic variables, stress-testing, VECM
JEL Classification: C15, C32, C53, E32, E37
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