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Macro-economic factors in credit risk calculations: including time-varying covariates in mixture cure models

Author

Listed:
  • 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 due to the fact that 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 modelled, distinct from time of default for the susceptible population. In this paper, 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 data set.

Suggested Citation

  • Lore Dirick & Tony Bellotti & Gerda Claeskens & Bart Baesens, 2016. "Macro-economic factors in credit risk calculations: including time-varying covariates in mixture cure models," Working Papers of Department of Decision Sciences and Information Management, Leuven 557528, KU Leuven, Faculty of Economics and Business (FEB), Department of Decision Sciences and Information Management, Leuven.
    • Handle: RePEc:ete:kbiper:557528
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    File URL: https://lirias.kuleuven.be/retrieve/413836
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    Keywords

    Credit risk modeling; Mixture cure model; Time-varying covariates; Macroeconomic factors; Survival analysis;
    All these keywords.

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