Forecasting and Stress Testing Credit Card Default with Dynamic Models

Tony Bellotti, Jonathan Crook

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

Typically models of credit card default are built on static data, often collected at time
of application. We consider alternative models that also include behavioural data
about credit card holders and macroeconomic conditions across the credit card
lifetime, using a discrete survival analysis framework. We find that dynamic models
that include these behavioural and macroeconomic variables give statistically
significant improvements in model fit which translates into better forecasts of default
at both account and portfolio level when applied to an out-of-sample data
set. Additionally, by simulating extreme economic conditions, we show how these
models can be used to stress test credit card portfolios.
Original languageEnglish
Pages (from-to)563-574
Number of pages12
JournalInternational Journal of Forecasting
Volume29
Issue number4
DOIs
Publication statusPublished - 2013

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