Sources of Risk in Credit Portfolios

초록

This study proposes a novel method for identifying time-varying sources of default clustering in credit portfolios within a regulatory framework. The proposed model captures default clustering attributable to prevailing economic conditions through a time-varying default threshold, which determines the conditional expected default rate. It then identifies additional default clustering beyond this conditional expectation via a time-varying asset correlation, reflecting systematic risk and dependence among obligors. For an empirical application, the model estimates sector-specific time-varying default thresholds and asset correlations for aggregate U.S. loan portfolios. Using the Hoeffding decomposition, a risk contribution analysis quantifies how each loan sector’s time-varying default threshold and asset correlation affect default risk both within that sector and across other sectors. The results demonstrate that the risk sources associated with the sectors central to the two most recent major financial crises—the business sector during the dot-com bubble and the mortgage sector during the global financial crisis—exert significant spillover effects on default dynamics across other loan sectors.

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