Difference between revisions of "Low Default Portfolios"

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'''Low Default Portfolios''' (LDP) are certain classes of credit portfolios that due to the good credit quality of the constituents do not offer adequate historical statistics of default events to enable proper statistical modeling. Technically this can be considered as a [[Data Quality]] or [[Missing Data Imputation|Missing Data]] problem due to ''right censoring'' (limited observation time).
 
'''Low Default Portfolios''' (LDP) are certain classes of credit portfolios that due to the good credit quality of the constituents do not offer adequate historical statistics of default events to enable proper statistical modeling. Technically this can be considered as a [[Data Quality]] or [[Missing Data Imputation|Missing Data]] problem due to ''right censoring'' (limited observation time).
  
LDP's consist of [[Sovereign Risk | sovereigns]] (Governments, Central Banks), institutions (Banks and other Financial Corporations) and large corporates as these portfolios generally contain few defaults relative to the total number of obligors<ref>EBA Report, Results from the 2014 Low Default Portfolio exercise</ref>
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LDP's consist of [[Sovereign Risk | sovereigns]] (Governments, Central Banks), institutions (Banks and other Financial Corporations) and [[Large Corporates]] as these portfolios generally contain few defaults relative to the total number of obligors<ref>EBA Report, Results from the 2014 Low Default Portfolio exercise</ref>
  
 
== Methodologies ==
 
== Methodologies ==

Latest revision as of 17:46, 11 October 2019

Definition

Low Default Portfolios (LDP) are certain classes of credit portfolios that due to the good credit quality of the constituents do not offer adequate historical statistics of default events to enable proper statistical modeling. Technically this can be considered as a Data Quality or Missing Data problem due to right censoring (limited observation time).

LDP's consist of sovereigns (Governments, Central Banks), institutions (Banks and other Financial Corporations) and Large Corporates as these portfolios generally contain few defaults relative to the total number of obligors[1]

Methodologies

Regulatory views on credit risk models for low default portfolios have been set out in[2]

Issues and Challenges

  • There is no universal threshold for what constitutes a low default portfolio. Indicatively, across all participating institutions in the 2014 EBA exercise, on average 2.3% (simple average) of the total EAD for the LDP was in default (1.3% using an exposure-weighted average)

References

  1. EBA Report, Results from the 2014 Low Default Portfolio exercise
  2. BCBS Newsletter 6, WP Validation of low-default portfolios in the Basel II Framework, September 2005

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