Research Repository

Could the subprime crisis have been predicted? A mortgage risk modeling approach

Constantinou, Nick and Utrilla, Jose Molina (2010) Could the subprime crisis have been predicted? A mortgage risk modeling approach. Working Paper. EBS Working Papers, Colchester.

[img]
Preview
Text
WP2010-6 NConstantinou Subprime.pdf

Download (2MB) | Preview

Abstract

The abnormally high mortgage default rates that became apparent in early 2007 were not foreseen in June 2005, when mortgage production reached its peak. Could the significant increase in mortgage defaults and the resultant subprime crisis have been predicted? This paper develops a mortgage-level predictive model for mortgage default and delinquency rates, based on a logistic regression and Markov chain framework. The results are compared against actual mortgage level default data and provide strong evidence that the high US nonprime mortgage default rates which triggered the crisis were already predictable in mid-2005 using historical data only available at the time.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Default Probabilities, Logistic Regression, Markov Chain, Credit Risk, Mortgage Defaults
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Science and Health > Computer Science and Electronic Engineering, School of > Centre for Computational Finance and Economic Agents
Depositing User: Jenny Connolly
Date Deposited: 03 Jan 2014 09:54
Last Modified: 03 Jan 2014 09:54
URI: http://repository.essex.ac.uk/id/eprint/8106

Actions (login required)

View Item View Item