Journal of Risk Model Validation

Risk.net

Loss given default modeling: an application to data from a Polish bank

Marek Karwański, Michał Gostkowski and Piotr Jałowiecki

  • We presented the outline of the Analytical Base Table for LGD calculations.
  • We have concluded that the multilogit model is better for LGD estimates than beta-reg.
  • We proposed the Monte-Carlo all-subset selection method to reduce generic LGD model.

ABSTRACT

Basel II allows banks to determine capital requirements using an internal ratings-based (IRB) approach. Under the IRB approach, one of the key parameters in the regulatory capital formula is loss given default (LGD). This paper compares two methods of estimating LGD: a beta regression model and a multinomial logit (MNL) model. The calculations were conducted for overdrafts of small and medium enterprises using data provided by a Polish bank. The results indicate that the MNL model is better for modeling LGD than the beta regression model.

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

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