Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83375
Authors: 
Kadeřábek, Petr
Slabý, Aleš
Vodička, Josef
Year of Publication: 
2008
Series/Report no.: 
IES Working Paper 11/2008
Abstract: 
This paper introduces a model for stress testing of probability of default of individuals. The model rests on assumption that the individual defaults if his savings fall below zero. The probability of default is then described as a function of several macroeconomic indicators such as wages, unemployment and interest rates. Stress testing is carried out by applying exogenous stress scenarios for development of these indicators. The model implies that sensitivity of probability of default to the stress is mainly driven by Installment to Income Ratio and for mortgages also by loan maturity. Hence Installment to Income ratio is suggested as the appropriate tool to manage credit risk of retail portfolios.
Subjects: 
banking
credit risk
stress testing
probability of default
JEL: 
G21
E32
E21
Document Type: 
Working Paper
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