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Macro-Economic Factors in Credit Risk Calculations: Including Time-Varying Covariates in Mixture Cure Models

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  • Lore Dirick
  • Tony Bellotti
  • Gerda Claeskens
  • Bart Baesens

Abstract

The prediction of the time of default in a credit risk setting via survival analysis needs to take a high censoring rate into account. This rate is because default does not occur for the majority of debtors. Mixture cure models allow the part of the loan population that is unsusceptible to default to be modeled, distinct from time of default for the susceptible population. In this article, we extend the mixture cure model to include time-varying covariates. We illustrate the method via simulations and by incorporating macro-economic factors as predictors for an actual bank dataset.

Suggested Citation

  • Lore Dirick & Tony Bellotti & Gerda Claeskens & Bart Baesens, 2019. "Macro-Economic Factors in Credit Risk Calculations: Including Time-Varying Covariates in Mixture Cure Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 37(1), pages 40-53, January.
    • Handle: RePEc:taf:jnlbes:v:37:y:2019:i:1:p:40-53
    DOI: 10.1080/07350015.2016.1260471
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    Cited by:

    1. Medina-Olivares, Victor & Calabrese, Raffaella & Crook, Jonathan & Lindgren, Finn, 2023. "Joint models for longitudinal and discrete survival data in credit scoring," European Journal of Operational Research, Elsevier, vol. 307(3), pages 1457-1473.
    2. Pei, Youquan & Peng, Heng & Xu, Jinfeng, 2024. "A latent class Cox model for heterogeneous time-to-event data," Journal of Econometrics, Elsevier, vol. 239(2).
    3. Luca Barbaglia & Sebastiano Manzan & Elisa Tosetti, 2023. "Forecasting Loan Default in Europe with Machine Learning," Journal of Financial Econometrics, Oxford University Press, vol. 21(2), pages 569-596.
    4. Medina-Olivares, Victor & Calabrese, Raffaella & Dong, Yizhe & Shi, Baofeng, 2022. "Spatial dependence in microfinance credit default," International Journal of Forecasting, Elsevier, vol. 38(3), pages 1071-1085.
    5. Lambert, Philippe & Kreyenfeld, Michaela, 2023. "Exogenous time-varying covariates in double additive cure survival model with application to fertility," LIDAM Discussion Papers ISBA 2023006, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    6. Yufei Xia & Xinyi Guo & Yinguo Li & Lingyun He & Xueyuan Chen, 2022. "Deep learning meets decision trees: An application of a heterogeneous deep forest approach in credit scoring for online consumer lending," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(8), pages 1669-1690, December.
    7. 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).
    8. Janette Larney & James Samuel Allison & Gerrit Lodewicus Grobler & Marius Smuts, 2023. "Modelling the Time to Write-Off of Non-Performing Loans Using a Promotion Time Cure Model with Parametric Frailty," Mathematics, MDPI, vol. 11(10), pages 1-17, May.
    9. Dirick, Lore & Claeskens, Gerda & Vasnev, Andrey & Baesens, Bart, 2022. "A hierarchical mixture cure model with unobserved heterogeneity for credit risk," Econometrics and Statistics, Elsevier, vol. 22(C), pages 39-55.
    10. Ana López-Cheda & Yingwei Peng & María Amalia Jácome, 2023. "Rejoinder on: Nonparametric estimation in mixture cure models with covariates," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 32(2), pages 513-520, June.
    11. Victor Medina-Olivares & Finn Lindgren & Raffaella Calabrese & Jonathan Crook, 2023. "Joint model for longitudinal and spatio-temporal survival data," Papers 2311.04008, arXiv.org.
    12. Hattori, Takahiro & Yoshida, Jiro, 2023. "The impact of Bank of Japan’s exchange-traded fund purchases," Journal of Financial Stability, Elsevier, vol. 65(C).

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