A portfolio view of consumer credit

Modelling credit risk of portfolio of consumer loans

One of the issues that the Basel Accord highlighted was that though techniques for estimating the probability of default and hence the credit risk of loans to individual consumers are well established, there were no models for the credit risk of portfolios of such loans. Motivated by the reduced form models for credit risk in corporate lending, we will seek to exploit the obvious parallels betw...

Portfolio Credit Risk

Portfolio credit-risk optimization

This paper evaluates several alternative formulations for minimizing the credit risk of a portfolio of financial contracts with different counterparties. Credit risk optimization is challenging because the portfolio loss distribution is typically unavailable in closed form. This makes it difficult to accurately compute Value-at-Risk (VaR) and expected shortfall (ES) at the extreme quantiles tha...

Concurrent credit portfolio losses

We consider the problem of concurrent portfolio losses in two non-overlapping credit portfolios. In order to explore the full statistical dependence structure of such portfolio losses, we estimate their empirical pairwise copulas. Instead of a Gaussian dependence, we typically find a strong asymmetry in the copulas. Concurrent large portfolio losses are much more likely than small ones. Studyin...

Dealer Pricing of Consumer Credit

Price discrimination incentives may induce dealers to bear the financial cost of their customers’ credit purchases. We focus in particular on how financial market imperfections make it possible to segment the customer population. When borrowing and lending rates differ from each other and from the rate of interest on a durable good purchase, the structure of those rates influences customers’ ch...