While a chapter cannot do justice to the whole credit risk modeling process, we will try to incorporate multiple approaches to model building. Let's start with exploring our data for the mortgage book of a retail bank.
The concept of link, customer, and account is something that most individuals dealing with credit risk modeling will become acquainted with. These concepts can be named differently in organizations, but the relationship remains similar. Individual customers may come together to form a relationship. The variable representing such relationships has been called a link in Figure 3.1. Each customer is also expected to have various lending needs. In the case of mortgages, these lending needs may be mortgage terms across various years, varying interest rates, differing loan to values (LTVs), and so on. Each of these combinations of needs may exist as...
