M. Galloway (University of St. Thomas): Time-to-default Analysis of Mortgage Portfolios

The study analyzes aggregated data on defaults of prime and sub-prime mortgages on the U.S. market in 2000-2010 provided by FFIEC. Population heterogeneity is addressed using Fader-Hardie methodology, introduced for customer retention modeling in 2005. Estimation in Weibull mixture models and Weibull-Gamma models is carried out using MLE and MCMC (random walk Metropolis). MCMC estimation with non-informative priors brought about some unexpected new results. Performance of estimators is compared using out-of-sample validation techniques. The use of informative priors and the effect of macro-economic covariates is discussed.

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