Comparison of single distribution and mixture distribution models for modelling LGD

Estimating Recovery Rate and Recovery Amount has taken a more importance in consumer credit because of both the new Basel Accord regulation and the increase in number of defaulters due to the recession. We examine whether it is better to estimate Recovery Rate (RR) or Recovery amounts. We use linear regression and survival analysis models to model Recovery rate and Recovery amount, thus to predict Loss Given Default (LGD) for unsecured personal loans. We also look at the advantages and disadvantages of using single distribution model or mixture distribution models for default