The impact of changes in the base and precious metals prices on credit risk factors

Abstract

The changes in the prices of base and precious metals on the global metal market have a significant impact on credit risk factors. The link between these factors has been neglected over the years by traditional credit risk models. The inclusion of correlation coefficients within the set credit risk model will show the impact of these changes on other variables of credit risk over the years under review and the impact of these changes on the probability of default and the recovery rate. Changes in base metals prices on the London Metal Exchange (LME) for lead and zinc and the London Bullion Metal Association (LBMA) for gold and silver as precious metals were used in the proposed credit risk model for the period of ten years. The research was done by using the multivariate regression analysis model and based on the statistical model evaluation,the significant impact of all observed independent variables on the dependent variable of the proposed model was proved. The construction of the proposed model with proven predictability gives a scientific significance to the research that includes variables of models from different markets, which have a significant impact on the variables from the financial market.