Journal of Risk Model Validation

Probability of default estimation and validation within the context of the credit cycle

Oliver Blümke


The dependency of the individual default behavior of a firm on the state of the credit cycle is widely implemented in credit portfolio models and ultimately reflected in the Basel II one-factor model determining capital requirements. Despite this, macroeconomic variables able to represent this one factor - accounting for fluctuations in annual default rates - are not clearly identified. This paper analyzes non-parametric estimates of the credit cycle and macroeconomic variables are identified to explain systematic fluctuations in annual default rates, ie, the credit cycle. Applications of the presented methodology are in the area of default probability estimation and validation.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here