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A Markov Chain Model for the Cure Rate of Non-Performing Loans

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  • Vilislav Boutchaktchiev

Abstract

A Markov-chain model is developed for the purpose estimation of the cure rate of non-performing loans. The technique is performed collectively, on portfolios and it can be applicable in the process of calculation of credit impairment. It is efficient in terms of data manipulation costs which makes it accessible even to smaller financial institutions. In addition, several other applications to portfolio optimization are suggested.

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  • Vilislav Boutchaktchiev, 2018. "A Markov Chain Model for the Cure Rate of Non-Performing Loans," Papers 1805.11804, arXiv.org, revised Jun 2018.
    • Handle: RePEc:arx:papers:1805.11804
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    References listed on IDEAS

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    1. Gaffney, Edward & Kelly, Robert & McCann, Fergal, 2014. "A transitions-based framework for estimating expected credit losses," Research Technical Papers 16/RT/14, Central Bank of Ireland.
    2. Scott D. Grimshaw & William P. Alexander, 2011. "Markov chain models for delinquency: Transition matrix estimation and forecasting," Applied Stochastic Models in Business and Industry, John Wiley & Sons, vol. 27(3), pages 267-279, May.
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