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The Conditional Probability of Mortgage Default
Author(s) -
Capozza Dennis R.,
Kazarian Dick,
Thomson Thomas A.
Publication year - 1998
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00750
Subject(s) - economics , conditional expectation , econometrics , conditional probability , sign (mathematics) , empirical research , conditional variance , horizon , actuarial science , mathematical economics , mathematics , statistics , autoregressive conditional heteroskedasticity , volatility (finance) , mathematical analysis , geometry
This research examines the implications of contingent‐claims models for empirical research on default. We focus on the probability of default over a short horizon given the current state of the world, i.e. , the conditional probability of default, which more closely resembles the estimates of empirical models. We highlight the differences between the conditional and unconditional approaches and provide guidance for empirical research by illuminating situations where the expected sign reverses over the shorter horizon or where the functional form is highly nonlinear.