Journal of Risk Model Validation

Risk.net

A framework for loss given default validation of retail portfolios

Stefan Hlawatsch and Peter Reichling

ABSTRACT

Modeling and estimating loss given default (LGD) is necessary for banks that apply for the internal ratings based approach for retail portfolios. To validate LGD estimations, there are only a few approaches discussed in the literature. In this paper, two models for validating relative LGD and absolute losses are developed. The validation of relative LGD is important for risk-adjusted credit pricing and interest rate calculations. The validation of absolute losses is important to meet the capital requirements of Basel II. Both models are tested with real data from a bank. Estimations are tested for robustness with in-sample and out-of-sample tests.

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 Risk.net? View our subscription options

If you already have an account, please sign in here.

You need to sign in to use this feature. If you don’t have a Risk.net 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: