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| Autore principale: | |
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| Natura: | Preprint |
| Pubblicazione: |
2025
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| Soggetti: | |
| Accesso online: | https://arxiv.org/abs/2509.10586 |
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| _version_ | 1866908548954324992 |
|---|---|
| author | Rostampour, Vahab |
| author_facet | Rostampour, Vahab |
| contents | Estimating lifetime probabilities of default (PDs) under IFRS~9 and CECL requires projecting point--in--time transition matrices over multiple years. A persistent weakness is that macroeconomic forecast errors compound across horizons, producing unstable and volatile PD term structures. This paper reformulates the problem in a state--space framework and shows that a direct Kalman filter leaves non--vanishing variability. We then introduce an anchored observation model, which incorporates a neutral long--run economic state into the filter. The resulting error dynamics exhibit asymptotic stochastic stability, ensuring convergence in probability of the lifetime PD term structure. Simulation on a synthetic corporate portfolio confirms that anchoring reduces forecast noise and delivers smoother, more interpretable projections. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2509_10586 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Stabilising Lifetime PD Models under Forecast Uncertainty Rostampour, Vahab Risk Management Systems and Control Estimating lifetime probabilities of default (PDs) under IFRS~9 and CECL requires projecting point--in--time transition matrices over multiple years. A persistent weakness is that macroeconomic forecast errors compound across horizons, producing unstable and volatile PD term structures. This paper reformulates the problem in a state--space framework and shows that a direct Kalman filter leaves non--vanishing variability. We then introduce an anchored observation model, which incorporates a neutral long--run economic state into the filter. The resulting error dynamics exhibit asymptotic stochastic stability, ensuring convergence in probability of the lifetime PD term structure. Simulation on a synthetic corporate portfolio confirms that anchoring reduces forecast noise and delivers smoother, more interpretable projections. |
| title | Stabilising Lifetime PD Models under Forecast Uncertainty |
| topic | Risk Management Systems and Control |
| url | https://arxiv.org/abs/2509.10586 |