Generalized beta regression models for random loss-given-default

Xinzheng Huang and Cornelis W. Oosterlee

Abstract

ABSTRACT

A framework for modeling systematic risk in loss given default in the context of credit portfolio losses is described in this paper. The class of models is very flexible and accommodates skewness and heteroskedastic errors well. The inference of models in this framework can be unified. Moreover, it allows efficient numerical procedures, such as the normal approximation and the saddlepoint approximation, to calculate the portfolio loss distribution, value-at-risk and expected shortfall.