The aim of this paper is to apply a Gaussian process to decompose the time series of crude default rates into three components: age of the loan, quality of the loan and the exogenous economic environment. This is supported by the empirical result for a mortgage and personal loans portfolio based on five years of historic data. The Gaussian process does not impose an explicit parametric structure to the relationship between the three components and the default rate compared to other methodologies that assume a linear structure. | Macro economic cycle effect on mortgage and personal loan default rates
