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FRM Part II · FRM Exam Part II · Credit Scoring and Retail Credit Risk Management

A credit card issuer uses a vintage analysis to forecast losses. Which interpretation of a vintage curve is most appropriate?

A vintage curve follows accounts originated in the same period and shows cumulative losses or delinquencies by months on book. This lets analysts compare cohorts at equal seasoning and spot underwriting deterioration, unlike a static snapshot that mixes accounts of different ages.

  1. AIt tracks cumulative loss or delinquency for accounts originated in the same period, by months on book, allowing comparison of cohorts at equal ageCorrect
  2. BIt plots current delinquency rates across all accounts regardless of origination date, showing the portfolio's static risk
  3. CIt estimates the correlation of defaults between borrowers in different regions using copula functions
  4. DIt converts a borrower's credit score into a through-the-cycle rating grade

Explanation

Vintage analysis groups accounts by origination date and follows performance by age, so cohorts can be compared at the same seasoning and changes in underwriting quality identified. A snapshot of all accounts mixes seasoning levels. It is not a correlation or score mapping tool.

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