Bibliography

(eng): We propose a new dynamic model of the Merton type, based on the Vasicek model. We generalize Vasicek model in three ways: we add model for loss given default (LGD), we add dynamics to the model and we allow non-normal distri- butions of risk factors. Then we add a retrospective interaction of underlying factors and found a non-linear behaviour of these factors. In particular, the evolution of factors underlying the DR and the LGD is assumed to be ruled by a non-linear vector AR process with lagged DR and LGD and their non-linear transformations. We apply our new model on real US mortgage data and demonstrate its statistical significance.