Assessment of mortgage default risk via Bayesian state space models
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Abstract: Managing risk at the aggregate level is crucial for banks and financial institutions as required by the Basel III framework. In this paper, we introduce discrete time Bayesian state space models with Poisson measurements to model aggregate mortgage default rate. We discuss parameter updating, filtering, smoothing, forecasting and estimation using Markov chain Monte Carlo methods. In addition, we investigate the dynamic behavior of the default rate and the effects of macroeconomic variables. We illustrate the use of the proposed models using actual U.S. residential mortgage data and discuss insights gained from Bayesian analysis.
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Cites work
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- A non-Gaussian family of state-space models with exact marginal likelihood
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- Bayes Factors
- Bayesian Vector Autoregressions with Stochastic Volatility
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- Bayesian forecasting of prepayment rates for individual pools of mortgages
- DATA AUGMENTATION AND DYNAMIC LINEAR MODELS
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- Modelling stylized features in default rates
- Optimal stopping in software testing
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- scientific article; zbMATH DE number 7750679 (Why is no real title available?)
- Kalman filtering and sequential Bayesian analysis
- Accuracy of mortgage portfolio risk forecasts during financial crises
- Model selection for time series of count data
- A Bayesian approach to modeling mortgage default and prepayment
- Application of the Merton model to estimate the probability of breaching the capital requirements under Basel III rules
- Assessment of mortgage default risk via Bayesian reliability models
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