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| | | | Export citation to: - HTML - Text (plain) - BibTeX - RIS - ReDIF | | **Predicting Bank Loan Recovery Rates in a Mixed Continuous-Discrete model**
by Raffaella Calabrese of University of Milano-Bicocca November 2010 **Abstract:** I propose to consider the recovery rate as a mixed random variable, obtained as the mixture of a Bernoulli and a beta random variables. I estimate the mixture weights and the Bernoulli parameter by two logistic regression models. For the recovery rates belonging to the interval (0,1), I model, jointly, the mean and the dispersion by using two link functions, so I propose the joint beta regression model that accommodates skewness and heteroscedastic errors. The estimation procedure is the maximum likelihood method. Finally, the methodological proposal is applied to a comprehensive survey on loan recovery process of Italian banks. Macroeconomic variables are relevant to explain the recovery rate and allow to estimate it in downturn conditions, as Basel II requires.
**Keywords:** downturn recovery rate, mixed random variable, joint beta regression model, logistic regression model.
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