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

Author

Listed:
  • Enrico De Giorgi

    (RiskLab, ETH Zürich)

Abstract

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.

Suggested Citation

  • Enrico De Giorgi, 2002. "An Intensity Based Non-Parametric Default Model for Residential Mortgage Portfolios," Risk and Insurance 0209001, EconWPA, revised 09 Sep 2002.
  • Handle: RePEc:wpa:wuwpri:0209001
    Note: Type of Document - Acrobat PDF; prepared on IBM PC; figures: included. RiskLab report
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    File URL: http://econwpa.repec.org/eps/ri/papers/0209/0209001.pdf
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    References listed on IDEAS

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    1. 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.
    2. Kau, James B. & Keenan, Donald C., 1999. "Patterns of rational default," Regional Science and Urban Economics, Elsevier, vol. 29(6), pages 765-785, November.
    3. Yongheng Deng & John M. Quigley, 2003. "Woodhead Behavior and the Pricing of Residential Mortgages," Working Paper 8616, USC Lusk Center for Real Estate.
    4. Deng, Yongheng, 1997. "Mortgage Termination: An Empirical Hazard Model with a Stochastic Term Structure," The Journal of Real Estate Finance and Economics, Springer, vol. 14(3), pages 309-331, May.
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    Cited by:

    1. repec:spr:schmbr:v:18:y:2017:i:3:d:10.1007_s41464-017-0034-y is not listed on IDEAS
    2. Adam Głogowski, 2008. "Macroeconomic determinants of Polish banks’ loan losses – results of a panel data study," NBP Working Papers 53, Narodowy Bank Polski, Economic Research Department.

    More about this item

    Keywords

    default risk; default intensity; mortgages; generalized additive model.;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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