Modelling default rate in a retail portfolio and the estimation of portfolio risk

Retail exposures, such as residential mortgages, credit cards, auto loans, and student loans make up a large share of credit portfolios in many financial institutions. According to the Federal Deposit Insurance Corporation (FDIC), retail exposures comprised 47% (nearly $2.7 trillion) of all outstanding loans originated by US commercial banks in early 2007 (see figure 1). In addition, these retail exposures make up a large portion of collateral in structured products with about $500 billion o