This thesis explores three important issues in credit risk modeling: the nonlinear credit risk stress testing models, the recovery term structure of point-in-time (PIT) loss given default (LGD), and the estimation of LGD by mixture beta regression model. In the first essay of this thesis, we study the credit risk stress testing models. By incorporating the regime-switching and quantile regression techniques into credit risk stress testing models, we propose two new dynamic models that outperform the traditional linear regression model according to both the point estimate accuracy and the confidence interval breaches. This confirms the importance of nonlinear regression approaches in the estimation and the prediction of credit risk determinants. The proposed models perform especially well in capturing the extreme values on the tail of the estimated distribution of the credit risk measure. The proposed models could be used for both the International Financial Reporting Standard 9 (IFRS9) expected loss calculation and Basel’s Advanced Internal Rating-Based (AIRB) regulatory capital calculation purposes. In the second essay, we examine and model the time-series pattern of recovery throughout the bankruptcy and workout process of a retail credit portfolio; whereas other researchers are concerned with predicting the overall recovery rates of debt instruments, we model the amounts a creditor can recover at different points in time subsequent to the default event. This is of practical interest to commercial banks in managing the risk of their default loan portfolios. Like managing performing loan portfolios, banks must assign loss provision and determine the capital requirement associated with non-performing (i.e., defaulted) loan portfolios. Given the fact that it usually takes two to three (up to five or more) years to complete the recovery process for a typical defaulted retail (corporate) loan, it is important to understand the time-varying risk characteristic of the defaulted portfolio as a function of its vintage in the recovery process. An accurate point-in-time (PIT) risk assessment enables financial institutions to manage their defaulted loan portfolios in a timely fashion. In the third essay, we further extend our understanding of the distribution of LGD. For credit risk management purposes, the LGD of credit instruments is one of the key determinants in estimating capital requirements for financial institutions. To address the practical problems encountered in implementing LGD prediction model (e.g., in capturing the bimodal characteristic of the LGD distribution), we propose to develop a mixture beta regression LGD model. By using the maximum likelihood estimation and the method of moment approaches, the parameters of the mixture beta regression model can be estimated. Furthermore, we examine the impact of the systematic factors and model the time-series variation of the LGD distribution as a function of these systematic factors. Finally, through a number of empirical analyses, we demonstrate the superior performance of our proposed mixture beta models in comparison with the single-beta logit-linked model commonly considered in the literature. / Thesis / Doctor of Philosophy (PhD)

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On a basis of the development of credit risk models, this study aims to help managers of financial institutions understand the development of the models so as to develop their own model that will provide objective and reasonable references for banks to decide the lending rate. Furthermore, this study used "Utilization of Long-Term Funding" as the object and studied individual cases of approved loans. By using risk neutral evaluation method to study the difference between the lending rate of loans and the risk-free interest rate of public bonds, to extract implied probabilities of default and required credit risk premiums form actual market data on interest rates. These credit risk premiums of model were used to be compared with the actual markups of banks and the results are as follows: 1.Most values stated in credit risk premium are lower than the actual markups for banks usually consider the burden of other capital costs and the factor of liquidity premium when they set the rating for markup. 2.After a loan is approved, the assumed recovery rate upon application will adjust according to the market value of the collateral. When the recovery rate decreases, the expected loss rate on the loan will gradually increase. Moreover, the higher the assumed recovery rate, the larger the corrected expected loss rate after the loan is approved. 3.In recent years, the non-performing rate for banks in Taiwan has reached a record high. Even though banks face less credit risks when they make long-term loans in "Utilization of Long-Term Funding", the probability of default has increased in recent years, which has contributed to the increase of expected loss rate on the long-term loan. In sum, banks still face credits risks that should not be ignored when they manage long-term loans. Thus, it is necessary to improve loan review to enhance the quality of loans and to increase the efficiency of utilization of long-term fund.

本篇論文將Kariya, Ushiyama, and Pliska三位學者在2003所發表之三因子不動產證券化評價模型加入信用風險(credit risk)的考量. / In this paper, we extend Kariya, Ushiyama, and Pliska’s three factor mortgage-backed securities pricing model with credit risk. In our model, two reasons that cause prepayment behaviors are the refinancing factor and the equity factor. Our pricing model is a discrete-time model, and the credit risk is priced due to the concept of reduced form model. We also use Monte Carlo simulation to test our theoretical value and make some comparisons between changing parameters.

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Thesis (Ph.D.)--University of Melbourne, Dept. of Finance, Faculty of Economics and Commerce, 2002. / Typescript (photocopy). Includes bibliographical references.

La dette souveraine est un instrument puissant de la politique publique. Avec sa croissance rapide dans les pays développés, d'une part, et le changement fondamental de sa structure dans les pays en développement d'autre part, comprendre les déterminants du risque souverain est devenu un sujet de préoccupation majeur pour les chercheurs et les investisseurs. Cette thèse étudie les aspects du risque de défaut dans les économies avancées et émergentes. La partie théorique présente le risque de défaut souverain. Les principaux résultats montrent que le choix de la devise d'émission représente un aspect important du profil de risque de défaut d'un Etat.Dans la première, une analyse détaillée des défauts souverains en utilisant une nouvelle base de données qui inclut 100 pays observés sur la période 1996-2012 a été conduite. Les résultats montrent que la décision d'un gouvernement de faire défait diffère sensiblement selon la dénomination de la monnaie et du type des détenteurs de la dette publique. La seconde étude a permis d'apporter un nouvel éclairage sur le rating souverain. Elle démontre que les pays dont la dette est en grande partie - ou entièrement - libellée dans leur propre monnaie bénéficient d'un avantage considérable sur les pays qui émettent en devise étrangère. Dans la dernière section empirique, le prix de marché du risque souverain a été exploré. L'étude montre que les facteurs globaux influent sur la rémunération des investisseurs pour la tenue du risque souverain, mais pas le risque lui-même.Les principaux résultats impliquent que toute modélisation du risque de défaut souverain appelle à une distinction entre devise locale et devise étrangère. / Sovereign debt is a powerful instrument of the public policy. With its dramatic increase in the western economies, on the one hand, and the fundamental change of its structure in the emerging markets, on the other, understanding the determinants of the sovereign default risk has became a subject of major concern for both researchers and investors. This dissertation investigates aspects of sovereign default risk in advanced and emerging economies.The theoretical section explores the sovereign default risk. The main results show that the choice of the currency of issue represents an important aspect of the sovereign's risk profile.Three empirical studies have been conducted. In the first, a detailed analysis of the sovereign defaults using a new database which includes 100 countries observed over the period 1966-2012 has been conducted. The results show that sovereigns typically default under different economic and financial conditions depending on the bond's currency denomination and the investor's base.The key contribution of the second research is to assess the importance of the currency of issuance in the rating of sovereign debt. The study demonstrates that countries whose debt is largely - or entirely - denominated in their own currency enjoy a substantial advantage over government issuing debt in foreign currency.The last empirical section explores the market price ofs overeign risk. It arugues that the default probability on sovereign bonds is unrelated to global factors.The main results imply that any sovereign default risk modeling requires a distinction between local currency and foreign currency.