Modelling the Dependence between Loss Frequency and Loss Rate

Lending to various companies and individuals is a core business of banks. This lending activity comes with credit risk, namely the risk that some borrowers default and fail to make required payments. Estimating credit risk accurately is important for banksâ risk management. In this project, we analyze and model the dependence between loss frequency and loss rate of defaulting customers. The reason for the dependence comes from the underlying economic cycle: in an economic downturn, losses occur both more frequently and more severely than in an economic boom. In this project, we plan to develop a suitable model for this dependence structure between loss frequency and loss rate, which will help estimate credit risk more accurately and thus determine capital requirements more precisely.

Faculty Supervisor:

Christoph Frei

Student:

Han Cao

Partner:

Canadian Western Bank

Discipline:

Statistics / Actuarial sciences

Sector:

University:

Program:

Accelerate