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Since the risk-based collections methodology pivots around PBAD, it's obvious that creditors have to get their PBADs right. Is there any methodology to quantify PBAD that is relatively free of subjective judgment?
Thanks Ketharaman Swaminathan for your comment. Methods in Mathematical Statistics methods exist to generate PBADs in an objective manner, that is PBADs based on historical data and statistical distributions. The PBADs across various segments can be compared
against historical actual bad rates to check for degree of alignment. Since PBADs for collection purposes should be designed to predict out for a short window, 6 to 12 months, at most, with annual validations and calibrations you can keep the PBAD up to date
relative to macro-economic and industry wide factors.
@CJWimley: Thank you for elaborating. It'd be great if you could refer me to some whitepaper(s) on PBAD quant models.
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