A Doubly Smoothed PD Estimator in Credit Risk

Abstract

In this work a doubly smoothed probability of default (PD) estimator is proposed based on a smoothed version of the survival Beran’s estimator. The asymptotic properties of both the smoothed survival and PD estimators are proved and their behaviour is analyzed by simulation. The results allow us to conclude that the time variable smoothing reduce the error committed in the PD estimation.

Keywords

• probability of default
• risk analysis
• censored data
• survival analysis
• nonparametric estimation
• kernel estimation