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Loss given default modeling: an application to data from a Polish bank

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  • Marek KarwaÅ„ski
  • MichaÅ‚ Gostkowski and Piotr JaÅ‚owiecki

Abstract

ABSTRACT Basel II allows banks to determine capital requirements using an internal ratings-based (IRB) approach. Under the IRB approach, one of the key parameters in the regulatory capital formula is loss given default (LGD). This paper compares two methods of estimating LGD: a beta regression model and a multinomial logit (MNL) model. The calculations were conducted for overdrafts of small and medium enterprises using data provided by a Polish bank. The results indicate that the MNL model is better for modeling LGD than the beta regression model.

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  • Marek KarwaÅ„ski & MichaÅ‚ Gostkowski and Piotr JaÅ‚owiecki, . "Loss given default modeling: an application to data from a Polish bank," Journal of Risk Model Validation, Journal of Risk Model Validation.
    • Handle: RePEc:rsk:journ5:2425809
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