Predicting Default Probabilities for Stress Tests: A Comparison of Models

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Tác giả: Martin Guth

Ngôn ngữ: eng

Ký hiệu phân loại: 688.1 Models and miniatures

Thông tin xuất bản: 2022

Mô tả vật lý:

Bộ sưu tập: Metadata

ID: 192276

Since the Great Financial Crisis (GFC), the use of stress tests as a tool for assessing the resilience of financial institutions to adverse financial and economic developments has increased significantly. One key part in such exercises is the translation of macroeconomic variables into default probabilities for credit risk by using macrofinancial linkage models. A key requirement for such models is that they should be able to properly detect signals from a wide array of macroeconomic variables in combination with a mostly short data sample. The aim of this paper is to compare a great number of different regression models to find the best performing credit risk model. We set up an estimation framework that allows us to systematically estimate and evaluate a large set of models within the same environment. Our results indicate that there are indeed better performing models than the current state-of-the-art model. Moreover, our comparison sheds light on other potential credit risk models, specifically highlighting the advantages of machine learning models and forecast combinations.
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