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An Intensity Based Non-Parametric Default Model for Residential Mortgage Portfolios

  • Enrico De Giorgi

    (RiskLab, ETH Zürich)

In April 2001 Swiss banks held over CHF 500 billion in mortgages. This important segment accounts for about 63\% of all the loan portfolios of Swiss banks. In this paper we restrict our attention to residential mortgages held by private clients, i.e. borrowers who finance their property by the loan and we model the probability distribution of the number of defaults using a non-parametric intensity based approach. We consider the time-to-default and, by conditioning on a set of predictors for the default event, we obtain a log-additive model for the conditional intensity process of the time-to-default, where the contribution of each predictor is described by a smooth function. We estimate the model by using a local scoring algorithm coming from the generalized additive model.

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File URL: http://128.118.178.162/eps/ri/papers/0209/0209001.pdf
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Paper provided by EconWPA in its series Risk and Insurance with number 0209001.

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Date of creation: 04 Sep 2002
Date of revision: 09 Sep 2002
Handle: RePEc:wpa:wuwpri:0209001
Note: Type of Document - Acrobat PDF; prepared on IBM PC; figures: included. RiskLab report
Contact details of provider: Web page: http://128.118.178.162

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  1. Deng, Yongheng & Quigley, John M., 2004. "Woodhead Behavior and the Pricing of Residential Mortgages," Berkeley Program on Housing and Urban Policy, Working Paper Series qt85q0w8xj, Berkeley Program on Housing and Urban Policy.
  2. Santos Silva, J.M.C. & Murteira, J.M.R., 2009. "Estimation of default probabilities using incomplete contracts data," Journal of Empirical Finance, Elsevier, vol. 16(3), pages 457-465, June.
  3. Kau, James B. & Keenan, Donald C., 1999. "Patterns of rational default," Regional Science and Urban Economics, Elsevier, vol. 29(6), pages 765-785, November.
  4. Yongheng Deng, . "Mortgage Termination: An Empirical Hazard Model with Stochastic Term Structure," Working Papers _002, University of California at Berkeley, Econometrics Laboratory Software Archive.
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