Modelling recovery rates for non-performing loans

Research output: Journal PublicationArticlepeer-review

8 Citations (Scopus)

Abstract

Based on a rich dataset of recoveries donated by a debt collection business, recovery rates for non-performing loans taken from a single European country are modelled using linear regression, linear regression with Lasso, beta regression and inflated beta regression. We also propose a two-stage model: beta mixture model combined with a logistic regression model. The proposed model allowed us to model the multimodal distribution we found for these recovery rates. All models were built using loan characteristics, default data and collections data prior to purchase by the debt collection business. The intended use of the models was to estimate future recovery rates for improved risk assessment, capital requirement calculations and bad debt management. They were compared using a range of quantitative performance measures under K-fold cross validation. Among all the models, we found that the proposed two-stage beta mixture model performs best.

Original languageEnglish
Article number19
JournalRisks
Volume7
Issue number1
DOIs
Publication statusPublished - Mar 2019
Externally publishedYes

Keywords

  • Beta regression
  • Credit risk
  • Recovery rates

ASJC Scopus subject areas

  • Accounting
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management

Fingerprint

Dive into the research topics of 'Modelling recovery rates for non-performing loans'. Together they form a unique fingerprint.

Cite this