Examples of Modelling Vintages

Joseph Breeden

The methods in this book are all derived from the notion that modelling multiple vintages simultaneously allows us to understand the key drivers to those vintages and create useful forecasts. This approach is not specific to retail lending, and we saw in the discussion of the derivation in Chapter 3 that similar approaches have arisen in other fields. The methodology derives from the ability to define a vintage and track performance of those vintages. Although the main content of the book is about how to use these techniques in practical applications for retail lending, many other applications are possible.

The first example is for modelling the default rate of corporate bonds. Corporate lending usually follows a different modelling approach to retail lending because the available information and timescales for the dynamics are quite different from retail lending. Nevertheless, the corporate bonds example reveals many of the same structures found in retail lending and suggests that future approaches could benefit from incorporating the methods described here.

The coin price and tree ring examples are further afield from retail lending, but just as with the SETI@home example in