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Loss given default (LGD) modelling has become increasingly important for banks as they are required to comply with the Basel Accords for their internal computations of economic capital. Banks and financial institutions are encouraged to develop separate models for different types of products. In this thesis we apply and improve several new algorithms including support vector machine (SVM) techniques and mixed effects models to predict LGD for both corporate bonds and retail loans. SVM techniques are known to be powerful for classification problems and have been successfully applied to credit scoring and rating business. We improve the support vector regression models by modifying the SVR model to account for heterogeneity of bond seniorities to increase the predictive accuracy of LGD. We find the proposed improved versions of support vector regression techniques outperform other methods significantly at the aggregated level, and the support vector regression methods demonstrate significantly better predictive abilities compared with the other statistical models at the segmented level. To further investigate the impacts of unobservable firm heterogeneity on modelling recovery rates of corporate bonds a mixed effects model is considered, and we find that an obligor-varying linear factor model presents significant improvements in explaining the variations of recovery rates with a remarkably high intra-class correlation being observed. Our study emphasizes that the inclusion of an obligor-varying random effect term has effectively explained the unobservable firm level information shared by instruments of the same issuer. At last we incorporate the SVM techniques into a two-stage modelling framework to predict recovery rates of credit cards. The two-stage model with a support vector machine classifier is found to be advantageous on an out-of-time sample compared with other methods, suggesting that an SVM model is preferred to a logistic regression at the classification stage. We suggest that the choice of regression models is less influential in prediction of recovery rates than the choice of classification methods in the first step of two-stage models based on the empirical evidence. The risk weighted assets of financial institutions are determined by the estimates of LGD together with PD and EAD. A robust and accurate LGD model impacts banks when making business decisions including setting credit risk strategies and pricing credit products. The regulatory capital determined by the expected and unexpected losses is also important to the financial market stability which should be carefully examined by the regulators. In summary this research highlights the importance of LGD models and provides a new perspective for practitioners and regulators to manage credit risk quantitatively.

The determination of lending (credit) risk is one of the most important fields of bank activities. This thesis discusses the IRB approach under Basel II. This approach includes the LGD, EAD and PD parameters. All parameters are individually modelled by the bank using regulator approved models. Parameter PD is the most focused one in this thesis. Theory for this parameter is of interest in many papers. However, at present the need for modelling of PD parameter over more years is appearing. Parameter LGD is also discussed in this thesis. The parameter EAD is only briefly presented. The thesis begins with the IRB approach, regression models and evaluation indicators, and then it focuses on the above parameters.

A new class of drugs has been developed for treatment of muscle and bone mass wasting diseases called non-steroidal selective androgen receptor modulators (SARMs). Because of their positive androgenic effects such as muscle gain, they are desirable as performance enhancers. One of those substances is LGD-4033 (4-[(2R)-2-[(1R)-2,2,2-trifluoro-1-hydroxyethyl]pyrrolidin-1-yl]-2-(trifluoromethyl)- benzonitrile). It has been detected in human samples in routine doping control and another SARM has been detected in an equine blood sample in routine doping control. It is therefore indicated that SARMs need to be screened for in routine testing in equestrian sport. The aim of this project was to identify what metabolites were found in equine plasma after an intra venous administration of LGD-4033 using UHPLC coupled with QToF-MS and determine whether the parent compound or any of its metabolites were most suitable for doping control. With the sample preparation method protein precipitation, six possible metabolites were identified in samples from three horses. Two of the metabolites were identified as phase I-metabolites (monohydroxylated and dihydroxylated). Four of the metabolites were identified as phase II-metabolites, where glucuronidation had occurred. The most suitable species for doping control were determined based on a semi- quantification and were M1a, M2 and M3a.

In Sweden, all banks must report their regulatory capital in their reports to the market and their models for calculating this capital must be approved by the financial authority, Finansinspektionen. The regulatory capital is the capital that a bank has to hold as a security for credit risk and this capital should serve as a buffer if they would loose unexpected amounts of money in their lending business. Loss-Given-Default (LGD) is one of the main drivers of the regulatory capital and the minimum required capital is highly sensitive to the reported LGD. Workout LGD is based on the discounted future cash flows obtained from defaulted customers. The main issue with workout LGD is the incomplete workouts, which in turn results in two problems for banks when they calculate their workout LGD. A bank either has to wait for the workout period to end, in which some cases take several years, or to exclude or make rough assumptions about those incomplete workouts in their calculations. In this study the idea from Survival analysis (SA) methods has been used to solve these problems. The mostly used SA model, the Cox proportional hazards model (Cox model), has been applied to investigate the effect of covariates on the length of survival for a monetary unit. The considered covariates are Country of booking, Secured/Unsecured, Collateral code, Loan-To-Value, Industry code, Exposure-At- Default and Multi-collateral. The data sample was first split into 80 % training sample and 20 % test sample. The applied Cox model was based on the training sample and then validated with the test sample through interpretation of the Kaplan-Meier survival curves for risk groups created from the prognostic index (PI). The results show that the model correctly rank the expected LGD for new customers but is not always able to distinguish the difference between risk groups. With the results presented in the study, Nordea can get an expected LGD for newly defaulted customers, given the customers’ information on the considered covariates in this study. They can also get a clear picture of what factors that drive a low respectively high LGD. / I Sverige måste alla banker rapportera sitt lagstadgade kapital i deras rapporter till marknaden och modellerna för att beräkna detta kapital måste vara godkända av den finansiella myndigheten, Finansinspektionen. Det lagstadgade kapitalet är det kapital som en bank måste hålla som en säkerhet för kreditrisk och den agerar som en buffert om banken skulle förlora oväntade summor pengar i deras utlåningsverksamhet. Loss- Given-Default (LGD) är en av de främsta faktorerna i det lagstadgade kapitalet och kravet på det minimala kapitalet är mycket känsligt för det rapporterade LGD. Workout LGD är baserat på diskonteringen av framtida kassaflöden från kunder som gått i default. Det huvudsakliga problemet med workout LGD är ofullständiga workouts, vilket i sin tur resulterar i två problem för banker när de ska beräkna workout LGD. Banken måste antingen vänta på att workout-perioden ska ta slut, vilket i vissa fall kan ta upp till flera år, eller så får banken exkludera eller göra grova antaganden om dessa ofullständiga workouts i sina beräkningar. I den här studien har idén från Survival analysis (SA) metoder använts för att lösa dessa problem. Den mest använda SA modellen, Cox proportional hazards model (Cox model), har applicerats för att undersöka effekten av kovariat på livslängden hos en monetär enhet. De undersökta kovariaten var Land, Säkrat/Osäkrat, Kollateral-kod, Loan-To-Value, Industri-kod Exposure-At-Default och Multipla-kollateral. Dataurvalet uppdelades först i 80 % träningsurval och 20 % testurval. Den applicerade Cox modellen baserades på träningsurvalet och validerades på testurvalet genom tolkning av Kaplan-Meier överlevnadskurvor för riskgrupperna skapade från prognosindexet (PI). Med de presenterade resultaten kan Nordea beräkna ett förväntat LGD för nya kunder i default, givet informationen i den här studiens undersökta kovariat. Nordea kan också få en klar bild över vilka faktorer som driver ett lågt respektive högt LGD.

One of the most mentioned credit risk parameters in banking sector is loss given default (LGD). The regulatory framework allows to use own LGD estimation procedures after approval. The classification and regression trees are appropriate and flexible in this context and they offer some advantages comparing to the traditional approaches such as linear regression model. This work includes a theoretical background on tree based methods. In the last section, loss given default from debit accounts is estimated using the random forests which show the best performance in this case.

Made available in DSpace on 2016-03-15T19:25:38Z (GMT). No. of bitstreams: 1 Gustavo de Magalhaes Rezende.pdf: 1393519 bytes, checksum: 29eb5b0b0c12d95da19bb067fc0df68c (MD5) Previous issue date: 2011-08-08 / Fundo Mackenzie de Pesquisa / Basel II Accord will allow banks in Brazil to calculate their capital requirements using internal ratings based on the advanced IRB (Internal Rating-Based) approach, depending on their credit risk exposure. The main modeling components that must be estimated are the probability of default (PD), loss given default (LGD) and exposure at default (EAD). The aim of this dissertation is to estimate the parameter LGD using different models found in the literature in order to compare the obtained results. For that, the credit portfolios within this study will be simulated via Monte Carlo simulation, due to the difficulty in getting real losses data. / O acordo de Basileia II no Brasil vai permitir que os bancos utilizem modelos internos, na abordagem IRB avançada (Internal Rating-Based), que sirvam de base para o cálculo dos requisitos mínimos de capital em função do nível de exposição ao risco de crédito. Dentre os principais componentes estimados estão a probabilidade de default (PD probability of default), a perda dado o default (LGD loss given default) e a exposição no default (EAD exposure at default). Esta dissertação tem como objetivo realizar estimativas de LGD utilizando alguns modelos descritos na literatura e comparando os resultados obtidos. Para tanto, os portfólios de crédito do estudo serão simulados através de técnicas de Monte Carlo, dada a escassez de dados de perdas reais.

Endocytose joue un rôle dans l'activation du récepteur Notch. Des mutations dans le gène drosophilien lethal giant discs (lgd), provoque une prolifération cellulaire en perturbant l'endocytose de Notch. Les orthologues murins mlgd1 et 2 peuvent sauver ce phénotype, démontrant une fonction conservée. Cependant, des publications récentes suggèrent que les orthologs humains de lgd (hgd1/2) sont nucléaires. Dans cette étude, il est démontré que chez la Drosophile, le mutant dlgd(08) provoque l'accumulation de Notch dans des vésicules et une surprolifération de neuroblastes . Ceci suggère que Notch est activé a l'intérieur des endosomes dans les neuroblastes. L'immunohistochimie de cellules Hela indique que hlgd1 et 2 ne sont pas nucléaires, mais associés à des strctures endosomales. Enfin, la baisse d'expression par shRNA des gènes murins mlgd1 et mlgd2 provoque une différenciation accélérée des cellules souches hématopoïétiques dans la lignée lymphopoïèse T et bloque la transition DN3 / CD4+CD8+, suggérant une suractivation de Notch. / Endocytosis plays a role in the activation of the Notch receptor. Mutations in the Drosophila gene lethal giant discs (lgd), causes cellular overgrowth by perturbing Notch endocytosis. This Drosophila phenotype is rescued by the murine orthologs mlgd1 and 2, indicating conserved function. However, recent publications suggest that the human orthologs (hlgd1/2) are nuclear. This study demonstrates that the dlgd(08) mutant in Drosophila causes accumulation of Notch in vesicles and the overproliferation of neuroblasts. This suggests Notch is activated from within endosomes in neuroblasts. Immunohistochemistry of Hela cells indicates that hlgd1 is associated with early endosome while, hlgd2 with later endosome and lysosome, and not with the nucleus. Finally, down regulation of murine mlgd1 and mlgd2 by shRNA caused an accelerated differentiation of hematopoietic stem cell into the T lymphopoiesis lineage and blocked the DN3 to CD4+CD8+ transition, suggesting that Notch is overactivated in these cells.

Endocytose joue un rôle dans l'activation du récepteur Notch. Des mutations dans le gène drosophilien lethal giant discs (lgd), provoque une prolifération cellulaire en perturbant l'endocytose de Notch. Les orthologues murins mlgd1 et 2 peuvent sauver ce phénotype, démontrant une fonction conservée. Cependant, des publications récentes suggèrent que les orthologs humains de lgd (hgd1/2) sont nucléaires. Dans cette étude, il est démontré que chez la Drosophile, le mutant dlgd(08) provoque l'accumulation de Notch dans des vésicules et une surprolifération de neuroblastes . Ceci suggère que Notch est activé a l'intérieur des endosomes dans les neuroblastes. L'immunohistochimie de cellules Hela indique que hlgd1 et 2 ne sont pas nucléaires, mais associés à des strctures endosomales. Enfin, la baisse d'expression par shRNA des gènes murins mlgd1 et mlgd2 provoque une différenciation accélérée des cellules souches hématopoïétiques dans la lignée lymphopoïèse T et bloque la transition DN3 / CD4+CD8+, suggérant une suractivation de Notch. / Endocytosis plays a role in the activation of the Notch receptor. Mutations in the Drosophila gene lethal giant discs (lgd), causes cellular overgrowth by perturbing Notch endocytosis. This Drosophila phenotype is rescued by the murine orthologs mlgd1 and 2, indicating conserved function. However, recent publications suggest that the human orthologs (hlgd1/2) are nuclear. This study demonstrates that the dlgd(08) mutant in Drosophila causes accumulation of Notch in vesicles and the overproliferation of neuroblasts. This suggests Notch is activated from within endosomes in neuroblasts. Immunohistochemistry of Hela cells indicates that hlgd1 is associated with early endosome while, hlgd2 with later endosome and lysosome, and not with the nucleus. Finally, down regulation of murine mlgd1 and mlgd2 by shRNA caused an accelerated differentiation of hematopoietic stem cell into the T lymphopoiesis lineage and blocked the DN3 to CD4+CD8+ transition, suggesting that Notch is overactivated in these cells.