Bank failure prediction in the COVID-19 environment

Kristóf, Tamás (2021) Bank failure prediction in the COVID-19 environment. Asian Journal of Economics and Finance, 3 (1). pp. 157-171.

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The paper delivers a multi­state, continuous, non­homogeneous Markov chain to present a COVID­19 stressed probability of default (PD) model for banks. First it analyzes the theoretical and methodological considerations of bank failure. Then it provides a comprehensive review of earlier empirical bank failure models published in literature. It makes the case for a multi­state model design, which has numerous advantages over the conventional binary classification techniques. A formal description of Markov chain modeling is followed by the detailed presentation of empirical model development. Eventually it estimates PDs for a five­year forecast horizon with the developed model reflecting COVID­19 crisis impacts.

Item Type:Article
Uncontrolled Keywords:bank failure prediction, credit risk modeling, Markov chain, stress testing
JEL classification:C53 - Forecasting Models; Simulation Methods
G17 - Financial Forecasting and Simulation
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
ID Code:6305
Deposited By: MTMT SWORD
Deposited On:10 Feb 2021 14:12
Last Modified:10 Feb 2021 14:12

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