hello dears, I have just interested in IFRS9 ECL models. I have three question and I appreciate all answers.
1) which models are best for pd, LGD & EAD calculation when I have scarce (about 5-7 years quarterly data) data?
2) can I calculate lifetime PD without macroeconomic variables and then add macro effects?
3) when I use transition matrix approach how have to estimate "stage 2" for earlier period, when IFRS9 was not valid and there was not any classification by stages.
Answering:
(1) Bayesian methods. See for example: https://www.moodysanalytics.com/risk-perspectives-magazine/risk-management-decade-ahead/approaches-to-implementation/advanced-estimation-simulation-methods-for-retail-credit-portfolios
(2) PD without macro-variables will be just point-in-time PD. If you are interested in forward-looking PD, you have to add macro variables (easily using 1 above, for example).
(3) Bayesian methods again will help for rigorously adding expert criteria to stage calculations through prior information.
This paper might be interesting for you Bruche, M., & González-Aguado, C. (2010). Recovery rates, default probabilities, and the credit cycle. Journal of Banking & Finance, 34(4), 754-764.
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