Measuring expected time to default under stress conditions for corporate loans

摘要

We present a new measure of extreme credit risk in the time domain, namely the conditional expected time to default (CETD). This measure has a clear interpretation and can be applied in a straightforward way to the analyses of loan performance in time. In contrast to the probability of default, CETD provides direct information on the timing of a potential loan default under some stress scenarios. We apply a novel method to compute CETD using Markov probability transition matrices, a popular approach in the survival analysis literature. Weemploy the new measure to the analysis of changing credit risk in a large portfolio of corporate loans. CETD changes through time in line with other measures of credit risk and is positively related to output growth.