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Estimating Probability of Default on Peer to Peer Market – Survival Analysis Approach

Author

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  • Andrija Đurović

    (Societe Generale Montenegro AD, Montenegro)

Abstract

Arguably a cornerstone of credit risk modelling is the probability of default. This article aims is to search for the evidence of relationship between loan characteristics and probability of default on peer-to-peer (P2P) market. In line with that, two loan characteristics are analysed: 1) loan term length and 2) loan purpose. The analysis is conducted using survival analysis approach within the vintage framework. Firstly, 12 months probability of default through the cycle is used to compare riskiness of analysed loan characteristics. Secondly, log-rank test is employed in order to compare complete survival period of cohorts. Findings of the paper suggest that there is clear evidence of relationship between analysed loan characteristics and probability of default. Longer term loans are more risky than the shorter term ones and the least risky loans are those used for credit card payoff.

Suggested Citation

  • Andrija Đurović, 2017. "Estimating Probability of Default on Peer to Peer Market – Survival Analysis Approach," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 6(2), pages 149-167.
    • Handle: RePEc:cbk:journl:v:6:y:2017:i:2:p:149-167
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    File URL: http://www.cbcg.me/repec/cbk/journl/vol6no2-8.pdf
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    Citations

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    Cited by:

    1. Croux, Christophe & Jagtiani, Julapa & Korivi, Tarunsai & Vulanovic, Milos, 2020. "Important factors determining Fintech loan default: Evidence from a lendingclub consumer platform," Journal of Economic Behavior & Organization, Elsevier, vol. 173(C), pages 270-296.
    2. Evangelia Avgeri & Maria Psillaki & Evanthia Zervoudi, 2023. "Peer-to-Peer Lending as a Determinant of Federal Housing Administration-Insured Mortgages to Meet Sustainable Development Goals," Sustainability, MDPI, vol. 15(18), pages 1-30, September.

    More about this item

    Keywords

    Peer-to-peer market; Probability of default; Survival analysis; Vintage framework.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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