Overcoming Insufficient Data for Forecasting Probability of Default

In calculating a reserve for their loan portfolio, financial institutions must allocate enough to cover the expected loss over the next year, due to changes in market conditions, credit risk or operational risk. Overestimating the reserve can hurt the organization's profitability, and underestimating it runs the risk of financial ruin. In this whitepaper, the authors highlight the obstacles that confront risk managers with incomplete data, and the approaches they can take to overcome those hurdles.