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Modelling LGD for unsecured personal loans: decision tree approach

  • Part 1: Consumer Credit Risk Modelling
  • Published:
Journal of the Operational Research Society

Abstract

The New Basel Accord, which was implemented in 2007, has made a significant difference to the use of modelling within financial organisations. In particular it has highlighted the importance of Loss Given Default (LGD) modelling. We propose a decision tree approach to modelling LGD for unsecured consumer loans where the uncertainty in some of the nodes is modelled using a mixture model, where the parameters are obtained using regression. A case study based on default data from the in-house collections department of a UK financial organisation is used to show how such regression can be undertaken.

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Authors and Affiliations

  1. University of Southampton, Southampton, UK

    A Matuszyk, C Mues & L C Thomas

Authors
  1. A Matuszyk
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  2. C Mues
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  3. L C Thomas
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Matuszyk, A., Mues, C. & Thomas, L. Modelling LGD for unsecured personal loans: decision tree approach. J Oper Res Soc 61, 393–398 (2010). https://doi.org/10.1057/jors.2009.67

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  • DOI: https://doi.org/10.1057/jors.2009.67

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