Credit Risk and the Finnish Economy

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Title:Credit Risk and the Finnish Economy
Creators:
Jakubík, Petr
Journal or Publication Title:
AUCO Czech Economic Review, 1, 3, pp. 255-287
Uncontrolled Keywords:banking, credit risk, latent factor model, default rate

Abstract

The significance of credit risk models has increased with the introduction of the New Basel Accord, known as Basel II. The aim of this study is to examine default rate modeling. This paper follows two possible approaches to macro credit risk modeling, empirical models and a latent factor model based on Merton. We employ data over the time period from 1988 to 2003 for the Finnish economy, including time series of bankruptcy, numbers of firms and industry-specific data. Linear vector autoregressive models are used in the case of a dynamic empirical model. We examine how significant macroeconomic indicators determine the default rate in the whole economy and in industry-specific sectors. Since these models cannot provide microeconomic foundations, we employ a model with one latent factor, although multi-factor models are also considered. This estimation helps us to understand the relationships between credit risk and macroeconomic indicators. Both models can be used for default rate prediction or stress testing by central authorities.

Official URL: http://www.ceeol.com/aspx/issuedetails.aspx?issueid=D4F9AADE-5C65-4E11-80F4-D34C7C0CD667&articleid=FE62C7A1-5711-4ED6-B651-5EBEB827311A

Title:Credit Risk and the Finnish Economy
Creators:
Jakubík, Petr
Uncontrolled Keywords:banking, credit risk, latent factor model, default rate
Subjects:H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
H Social Sciences > HF Commerce
Divisions:Section of external journals > AUCO Czech Economic Review
Journal or Publication Title:AUCO Czech Economic Review
Volume:1
Number:3
Page Range:pp. 255-287
ISSN:1802-4696
Publisher:Charles University
Related URLs:
URLURL Type
http://auco.cuni.czPublisher
http://avi.lib.cas.cz/node/183Publisher
ID Code:4308
Item Type:Article
Deposited On:01 Jun 2009 18:32
Last Modified:01 Jun 2009 16:32

Citation

Jakubík, Petr (2007) Credit Risk and the Finnish Economy. AUCO Czech Economic Review, 1 (3). pp. 255-287. ISSN 1802-4696

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