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Probability of default estimation in credit risk using a nonparametric approach

Author

Listed:
  • Rebeca Peláez Suárez

    (University of A Coruña)

  • Ricardo Cao Abad

    (Research Group MODES, Department of Mathematics, CITIC, University of A Coruña, ITMATI)

  • Juan M. Vilar Fernández

    (Research Group MODES, Department of Mathematics, CITIC, University of A Coruña, ITMATI)

Abstract

In this paper, four nonparametric estimators of the probability of default in credit risk are proposed and compared. They are derived from estimators of the conditional survival function for censored data. Asymptotic expressions for the bias and the variance of these probability of default estimators are derived from similar properties for the conditional survival function estimators. A simulation study shows the performance of these four estimators. Finally, an empirical study based on modified real data illustrates their practical behaviour.

Suggested Citation

  • Rebeca Peláez Suárez & Ricardo Cao Abad & Juan M. Vilar Fernández, 2021. "Probability of default estimation in credit risk using a nonparametric approach," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 30(2), pages 383-405, June.
    • Handle: RePEc:spr:testjl:v:30:y:2021:i:2:d:10.1007_s11749-020-00723-1
    DOI: 10.1007/s11749-020-00723-1
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    References listed on IDEAS

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    1. Glennon, Dennis & Nigro, Peter, 2005. "Measuring the Default Risk of Small Business Loans: A Survival Analysis Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 923-947, October.
    2. L N Allen & L C Rose, 2006. "Financial survival analysis of defaulted debtors," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 57(6), pages 630-636, June.
    3. A. Gannoun & Jérôme Saracco & K. Yu, 2007. "Comparison of kernel estimators of conditional distribution function and quantile regression under censoring for survival analysis," Post-Print hal-00153550, HAL.
    4. Keilegom, Ingrid Van & Akritas, Michael G. & Veraverbeke, Noel, 2001. "Estimation of the conditional distribution in regression with censored data: a comparative study," Computational Statistics & Data Analysis, Elsevier, vol. 35(4), pages 487-500, February.
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    Cited by:

    1. Rebeca Peláez & Ricardo Cao & Juan M. Vilar, 2022. "Bootstrap Bandwidth Selection and Confidence Regions for Double Smoothed Default Probability Estimation," Mathematics, MDPI, vol. 10(9), pages 1-25, May.
    2. Peláez, Rebeca & Van Keilegom, Ingrid & Cao, Ricardo & Vilar, Juan M., 2024. "Probability of default estimation in credit risk using mixture cure models," Computational Statistics & Data Analysis, Elsevier, vol. 189(C).

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