IDEAS home Printed from https://ideas.repec.org/a/rsk/journ1/2474225.html
   My bibliography  Save this article

Benchmarking the loss given default parameter for mortgage loan portfolios under stress

Author

Listed:
  • Christian Greve
  • Lutz Hahnenstein

Abstract

ABSTRACT In this paper, we analyze the impact of a decline in property prices that leads to;stressed recovery rates for collateral on the loss given default (LGD) parameter in portfolios of mortgage loans. After discussing the shape of a portfolio's loan-to value;(LTV) distribution, we prove that the average LGD's stress sensitivity depends;on the LTV distribution, and we derive a closed-form solution for portfolio LGD;under the assumption of beta-distributed LTV ratios. Further, we present numerical;evidence that the relationship between LTV distribution and portfolio LGD is crucial;for understanding the stress resilience of banks involved in the mortgage business.;Our formula appears to be a meaningful starting point for benchmarking analyses by;regulators, rating agencies and risk managers.

Suggested Citation

Handle: RePEc:rsk:journ1:2474225
as

Download full text from publisher

File URL: https://www.risk.net/system/files/import/protected/digital_assets/10493/Benchmarking_LGD_for_mortgage_loan_portfolios.pdf
Download Restriction: no
---><---

More about this item

Statistics

Access and download statistics

Corrections

All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rsk:journ1:2474225. See general information about how to correct material in RePEc.

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

We have no bibliographic references for this item. You can help adding them by using this form .

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Paine (email available below). General contact details of provider: https://www.risk.net/journal-of-credit-risk .

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.