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On the mathematical modeling of point-in-time and through-the-cycle probability of default estimation/ validation

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  • Xin Zhang
  • Tony Tung

Abstract

Since Basel II, the second of the Basel Accords, was first published in June 2004, banks around the world have been engaged in a continuous effort to develop methodologies to estimate the key parameters: probability of default (PD), loss given default (LGD) and exposure at default (EAD). In this paper, we focus on PD estimation and validation.; We provide the mathematical modeling for both point-in-time (PIT) and through-the-cycle (TTC) PD estimation, and discuss their relationship and application in our banking system.

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Handle: RePEc:rsk:journ5:6446891
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File URL: https://www.risk.net/system/files/digital_asset/2019-03/PIT_and_TTC_PD_estimation_validation.pdf
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