Masters Degrees (Statistics and Actuarial Science)
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Browsing Masters Degrees (Statistics and Actuarial Science) by Subject "Bayesian statistics"
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- ItemProbability of default calibration for low default portfolios: revisiting the Bayesian approach(Stellenbosch : Stellenbosch University, 2016-03) Venter, Edward Stevens; Conradie, W. J.; Stellenbosch University. Economic and Management Sciences. Dept. of Statistics and Actuarial ScienceENGLISH ABSTRACT : The Probability of Default is one of the fundamental parameters used in the quantification of credit risk. When estimating the Probability of Default for portfolios with a low default nature the Probability of Default will always be underestimated. Therefore, a need exists for calibrating the Probability of Default for Low Default Portfolios. Various approaches have been considered in the literature review, with the main approaches being the Confidence Based Approach and Bayesian Approach. In this study the Bayesian Approach for calibrating the Probability of Default for portfolios of high grade credit is reconsidered. Two alternative prior distributions that can be used in the Bayesian Approach are proposed; these are an informative, Strict Pareto distribution and a non-informative Jeffreys prior. The performance of these proposals are then compared to existing calibration techniques by using real data.