00000nam 2200000zi 4500 9.902741 CaOODSP 20221107180039 m o d f cr |n||||||||| 210820t20212021oncd ob f|0| 0 eng d CaOODSP eng rda CaOODSP n-cn--- FB3-5/2021-11E-PDF Jang, Youngsoo, author. A generalized endogenous grid method for default risk models / by Youngsoo Jang and Soyoung Lee. Ottawa, Ontario, Canada : Bank of Canada = Banque du Canada, 2021. ©2021 1 online resource (ii, 40 pages) : charts. text txt rdacontent computer c rdamedia online resource cr rdacarrier Staff working paper = Document de travail du personnel, 1701-9397 ; 2021-11 "Last updated: March 12, 2021." Includes bibliographical references (pages 34-36). "Default risk models have been widely employed to assess the ability of households and sovereigns to insure themselves against shocks. Grid search has often been used to solve these models because the complexity of the problem prevents the use of faster but less general methods. In this paper, we propose an extension of the endogenous grid method for default risk models, which is faster and more accurate than grid search. In particular, we find that our solution method leads to a more accurate bond price function, thus making substantial differences in the model’s main predictions. When applied to Arellano’s (2008) model, our approach predicts a standard deviation of the interest rate spread one-third lower and defaults 3 to 5 times less frequently than does the conventional approach. On top of that, our methodis efficient. It is approximately 4 to 7 times faster than grid search when applied to a canonical model of Arellano (2008) and 19 to 27 times faster than grid search when applied to the richer model of Nakajima and Ríos-Rull (2014). Finally, we show that our method is applicable to a broad class of default risk models by characterizing sufficient conditions"--Abstract, page ii. Credit control Econometric models. Crédit Politique gouvernementale Modèles économétriques. Bank of Canada, issuing body. Staff working paper (Bank of Canada) 2021-11. (CaOODSP)9.806221 PDF 878 KB https://publications.gc.ca/collections/collection_2021/banque-bank-canada/FB3-5-2021-11-eng.pdf