European Journal of Business Science and Technology 2016, 2(2):122-130 | DOI: 10.11118/ejobsat.v2i2.64

Economic Adjustment of Default Probabilities

Tomáš Vaněk1
1 Mendel University in Brno, Czech Republic

This paper proposes a straightforward and intuitive computational mechanism for the economic adjustment of default probabilities, allowing the extension of the original (usually one-year) probability of default estimates for more than one period ahead. The intensity of economic adjustment can be flexibly modified by setting the appropriate weighting parameter. The proposed mechanism is designed to be useful especially in the context of lifetime expected credit losses calculation within the IFRS 9 requirements.

Keywords: credit risk, probability of default, economic adjustment, economic forecast, IFRS 9
JEL classification: C51, G32

Published: December 30, 2016  Show citation

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Vaněk, T. (2016). Economic Adjustment of Default Probabilities. European Journal of Business Science and Technology, 2(2), 122-130. doi: 10.11118/ejobsat.v2i2.64
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