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

See all articles by David Ardia

David Ardia

HEC Montreal - Department of Decision Sciences

Anas Guerrouaz

Université Laval - Département de Finance et Assurance

Jeanne Rey

National Bank of Canada

Date Written: July 7, 2016

Abstract

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

Suggested Citation

Ardia, David and Guerrouaz, Anas and Rey, Jeanne, Macroeconomic Stress-Testing of Mortgage Default Rate Using a Vector Error Correction Model and Entropy Pooling (July 7, 2016). Insurance and Risk Management, Vol. 83, Number 3-4, pp. 115-133, 2016, Available at SSRN: https://ssrn.com/abstract=2806403 or http://dx.doi.org/10.2139/ssrn.2806403

David Ardia (Contact Author)

HEC Montreal - Department of Decision Sciences ( email )

3000 Côte-Sainte-Catherine Road
Montreal, QC H2S1L4
Canada

Anas Guerrouaz

Université Laval - Département de Finance et Assurance ( email )

Pavillon Palasis-Prince
Quebec G1K 7P4
Canada

Jeanne Rey

National Bank of Canada ( email )

Canada

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