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The zero-inflated promotion cure rate model applied to financial data on time-to-default

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  • Mauro Ribeiro de Oliveira
  • Fernando Moreira
  • Francisco Louzada

Abstract

In this paper, we extend the promotion cure rate model studied in Yakovlev and Tsodikov (1996) and Chen et al. (1999) by incorporating an excess of zeros in the modeling. Despite relating covariates to the cure fraction, the current approach does not enable us to relate covariates to the fraction of zeros. The presence of excess of zeros in credit risk survival data stems from a group of loans that became defaulted shortly after the granting process. Through our proposal, all survival data available of customers is modeled with a multinomial logistic link for the three classes of banking customers: (i) individual with an event at the starting time (zero time), (ii) non-susceptible for the event, or (iii) susceptible for the event. The model parameter estimation is reached by the maximum likelihood estimation procedure and Monte Carlo simulations are carried out to assess its finite sample performance.

Suggested Citation

  • Mauro Ribeiro de Oliveira & Fernando Moreira & Francisco Louzada, 2017. "The zero-inflated promotion cure rate model applied to financial data on time-to-default," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1395950-139, January.
    • Handle: RePEc:taf:oaefxx:v:5:y:2017:i:1:p:1395950
    DOI: 10.1080/23322039.2017.1395950
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    References listed on IDEAS

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    1. Ospina, Raydonal & Ferrari, Silvia L.P., 2012. "A general class of zero-or-one inflated beta regression models," Computational Statistics & Data Analysis, Elsevier, vol. 56(6), pages 1609-1623.
    2. Tong, Edward N.C. & Mues, Christophe & Thomas, Lyn C., 2012. "Mixture cure models in credit scoring: If and when borrowers default," European Journal of Operational Research, Elsevier, vol. 218(1), pages 132-139.
    3. Rodrigues, Josemar & Cancho, Vicente G. & de Castro, Mrio & Louzada-Neto, Francisco, 2009. "On the unification of long-term survival models," Statistics & Probability Letters, Elsevier, vol. 79(6), pages 753-759, March.
    4. Li, Chin-Shang & Taylor, Jeremy M. G. & Sy, Judy P., 2001. "Identifiability of cure models," Statistics & Probability Letters, Elsevier, vol. 54(4), pages 389-395, October.
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    Cited by:

    1. Ruey-Ching Hwang & Chih-Kang Chu & Kaizhi Yu, 2021. "Predicting the Loss Given Default Distribution with the Zero-Inflated Censored Beta-Mixture Regression that Allows Probability Masses and Bimodality," Journal of Financial Services Research, Springer;Western Finance Association, vol. 59(3), pages 143-172, June.

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