Search arXiv⌕ Search
Home/Archive/arXiv

arXiv · 1307.2465

Contraction or steady state? An analysis of credit risk management in Italy in the period 2008-2012

Stefano Olgiati·Alessandro Danovi
View original source ↗Read source document ↗Export metadata ↓

Abstract

Credit risk management in Italy is characterized, in the period June 2008 to June 2012, by frequent (frequency=0.5 cycles per year) and intense (peak amplitude: mean=39.2 billion Euros, s.e.=2.83 billion Euros) quarterly contractions and expansions around the mean (915.4 billion Euros, s.e.=3.59 billion Euros) of the nominal total credit used by non-financial corporations. Such frequent and intense fluctuations are frequently ascribed to exogenous Basel II procyclical effects on credit flow into the economy and, consequently, Basel III output based point in time Credit to GDP countercyclical buffering advocated. We have tested the opposite null hypotheses that such variation is significantly correlated to actual default rates, and that such correlation is explained by fluctuations of credit supply around a steady state. We have found that, in the period June 2008 to June 2012 (n=17), linear regression of credit growth rates on default rates reveals a negative correlation of r=minus 0.6903 with R squared=0.4765, and that credit supply fluctuates steadily around the default rate with an Internal Steady State Parameter SSP=0.00245 with chi squared=37.47 (v=16, P<.005). We conclude that fluctuations of the total credit used by non-financial corporations are exhaustively explained by variation of the independent variable default rate, and that credit variation fluctuates around a steady state. We conclude that credit risk management in Italy has been effective in parameterizing credit supply variation to default rates within the Basel II operating framework. Basel III prospective countercyclical point in time output buffers based on filtered Credit to GDP ratios and dynamic provisioning proposals should take into account this underlying steady state statistical pattern.

Explore related subjects

q-fin.RM

Keep this discovery

Explore connections, maps & timelines

BibTeXRIS

Stefano Olgiati, Alessandro Danovi. 2013-07-08. Contraction or steady state? An analysis of credit risk management in Italy in the period 2008-2012. https://arxiv.org/abs/1307.2465

Cite the original work for its findings. Save a collection to share your selection of sources.

KEEP EXPLORING

Related papers

arXiv2026

Dynamic reinsurance via martingale transport

We formulate a dynamic reinsurance problem in which the insurer seeks to satisfy prescribed terminal moment or risk-based constraints while minimizing the $L^2$-norm of the ceded risk. As a tool for this analysis, we first use techniques from martingale optimal transport to study the auxiliary problem in which the insurer matches a given terminal distribution of the surplus process. We show that, under suitable assumptions, this auxiliary problem admits a tractable solution analogous to the Bass martingale. We then relax this condition by only requiring certain moment or risk-based constraints.

q-fin.RM↗
arXiv2026

Risk Measures under Paired-Ambiguity: A Deep Learning Reflected BSDE Framework

We study optimal stopping under dynamic risk measures with simultaneous ambiguity in the probability model and the discount rate. We introduce a paired ambiguity framework combining Girsanov model uncertainty with cash subadditive risk evaluation and characterize the stopping value by an upper reflected backward stochastic differential equation (BSDE). We establish structural properties of the resulting stopping operator and study quadratic drivers associated with entropic risk measures, obtaining explicit stopping rules in several benchmark cases. We then develop a deep learning scheme for the reflected quadratic BSDE. The convergence analysis uses discrete reflection and truncation to reduce the quadratic problem to a globally Lipschitz system and combines reflected BSDE discretization estimates with neural network approximation errors. Numerical experiments for American options illustrate the effects of discount rate and entropic ambiguity on stopping values and exercise decisions.

q-fin.RM↗
arXiv2026

When Is the Gini Loading More Prudent? Tail Structure and the Ordering of the Standard Deviation and the Gini Mean Difference

The standard deviation (SD) and the Gini mean difference (GMD) are the two canonical measures of variability used to load premiums, set risk margins and allocate capital, yet no universal ordering between them exists. We show that the comparison is \emph{equivalent} to asking whether the coefficient of variation of the spacing $|X-X'|$ generated by two independent copies of the risk exceeds unity, so that the exponential law -- whose spacing is again exponential -- is the universal knife-edge separating the two regimes. Reading the GMD as twice the maxiance, that is, as a second-order \emph{dual} moment in the sense of Yaari's dual theory, the problem becomes an explicit comparison of primal and dual second-order variability. We derive a closed-form representation of the mean excess function of the spacing in terms of the hazard and reverse hazard rates of $X$, and use it to prove that heavy-tailed behavior -- a decreasing hazard rate or an increasing reverse hazard rate -- yields SD dominance, whereas two-sided light tails yield GMD dominance; within the monotone aging classes, equality characterizes the exponential law. Both regimes are stable under truncation, convolution and mixing, which makes them operational in collective risk and frailty models. We classify the severity, lifetime and frequency distributions of actuarial practice accordingly, quantify the consequences for SD- and Gini-loaded premium principles and for Gini-type tail risk measures, and show that the sign of $\mathrm{SD}-\mathrm{GMD}$ across thresholds furnishes a simple diagnostic for tail aging.

q-fin.RM↗