Modelling Credit Risk: Evidence for EMV Methodology on Portuguese Mortgage Data

• Borges, Maria Rosa ^[1] ; Machado, Raquel ^[1]
  1. [1] Universidade de Lisboa

     Universidade de Lisboa

     Socorro, Portugal

     
• Localización: Estudios de economía aplicada, ISSN 1133-3197, ISSN-e 1697-5731, Vol. 39, Nº 8, 2021 (Ejemplar dedicado a: Sustainable Economic Development: Pattern and Perspective)
• Idioma: inglés
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• Resumen

  • ABSTRACTTraditional credit risk models failed during the recent financial crisis and revealed weaknesses in forecasting and stress testing procedures. One of the reasons for this failure was the fact that they did not include lifecycle and macroeconomic adverse selection effects. In this article, we assess the applicability of the Exogenous-Maturity-Vintage (EMV) models to study the determinants of default rates. We obtain and examine the exogenous, maturity and vintage curves from a dataset of Portuguese mortgage data. We show that the exogenous, maturity and vintage curves follow the expected behavior, and, we identify and discuss a set of explanatory variables.