Overview
In order to estimate a probability of default, a bank needs to track its loans over time. That is, they want to capture data about when each loan defaults.
The definition of default is somewhat arbitrary and can vary from bank to bank, but once set, a bank will want to know when its loans defaulted. The monthly snapshot is just a table of records that shows the current status of each loan. That is, each record will have the following fields.
- Date
- Loan Identifier
- Current Principal Outstanding
- Default Status
Snapshot Data
The following table of data represents a monthly snapshot of the loans for the example bank. Records exist for each loan for month. Once a loan has matured or it has defaulted, it drops out of the monthly snapshot.
Next Step
Calculate a average default rate.