Time to default in the UK mortgage market |
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Authors: | Bart Lambrecht William Perraudin Stephen Satchell |
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Institution: | aJudge Institute of Management Studies, Cambridge, UK;bBirkbeck College, London, UK;cTrinity College, Cambridge, UK |
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Abstract: | This paper employs duration analysis to investigate the timing of default in the UK mortgage market. Our analysis is performed on an ex ante basis, in that our explanatory variables are available to mortgage lenders when the loan is first made. We estimate both standard Weibull distributions and generalizations of the Weibull that permit non-monotonic hazard functions. The models fit the data well, suggesting that we have captured the major sources of variation in duration. We find that ‘cash flow’ variables, such as salary and interest rate paid, play the largest role. Surprisingly, loan-to-value ratios are either insignificant or influence default times in a counter-intuitive direction. |
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Keywords: | JEL classification: G21 R31 C41 |
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