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| Structural Models in Consumer Credit by Fabio Wendling Muniz de Andrade of EAESP-FGV / SERASA – Brazil, and July 2004 Abstract: We propose a structural credit risk model for consumer lending using option theory and the concept of the value of the consumer's reputation. Using Brazilian empirical data and a credit bureau score as proxy for creditworthiness we compare a number of alternative models before suggesting one that leads to a simple analytical solution for the probability of default. We apply the proposed model to portfolios of consumer loans introducing a factor to account for the mean influence of systemic economic factors on individuals. This results in a hybrid structural-reduced-form model. And comparisons are made with the Basel II approach. Our conclusions partially support that approach for modelling the credit risk of portfolios of retail credit. JEL Classification: C15, C51, G21, G28. Keywords: Credit risk models, consumer credit, Basel II, structural models. Published in: European Journal of Operational Research, Vol. 183, No. 3, (December 2007), pp. 1569-1581. Books Referenced in this Paper: (what is this?)
Download paper (183K PDF) 29 pages A regular visitor to this site will recognize that this is the only research paper that I post which deals with consumer credit. I have posted no other. I'm giving this particular research special treatment because, I believe, it is unique in its application of a structural model to consumer credit. If anyone knows of another example, I'd be keen to hear of it. Please contact me. --Greg [Home] [Other Credit Risk Papers]  |
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