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Assessment of mortgage default risk via Bayesian reliability models

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  • Refik Soyer
  • Feng Xu

Abstract

In this paper, we consider duration‐type models and their generalizations for modeling default risk. The models are motivated by noting similarities between reliability/survival analysis and mortgage default risk. We present Bayesian modeling strategies used in reliability analysis for describing time to default data. Our models include proportional hazards‐type generalized gamma and mixture models, which are capable of capturing nonmonotonic default rates. We develop Bayesian inference for our models and illustrate their implementation using actual time to default data from the U.S. mortgage market. Copyright © 2010 John Wiley & Sons, Ltd.

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  • Refik Soyer & Feng Xu, 2010. "Assessment of mortgage default risk via Bayesian reliability models," Applied Stochastic Models in Business and Industry, John Wiley & Sons, vol. 26(3), pages 308-330, May.
    • Handle: RePEc:wly:apsmbi:v:26:y:2010:i:3:p:308-330
    DOI: 10.1002/asmb.849
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    References listed on IDEAS

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    2. Feng Xu & Dazhong Wu & Jian Hua & Tih Koon Tan, 2022. "Preventive Maintenance for Mortgage Loans of Low-Income Borrowers," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 14(3), pages 1-66, February.
    3. Deku, Solomon Y. & Kara, Alper & Marqués-Ibáñez, David, 2019. "Do reputable issuers provide better-quality securitizations?," Working Paper Series 2236, European Central Bank.
    4. Oliver Blümke, 2022. "Multiperiod default probability forecasting," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(4), pages 677-696, July.
    5. Bhattacharya, Arnab & Wilson, Simon P. & Soyer, Refik, 2019. "A Bayesian approach to modeling mortgage default and prepayment," European Journal of Operational Research, Elsevier, vol. 274(3), pages 1112-1124.
    6. Andre Guettler & Ulrich Hommel & Julia Reichert, 2011. "The influence of sponsor, servicer, and underwriter characteristics on RMBS performance," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 25(3), pages 281-311, September.

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