26 Pages Posted: 28 Mar 2012
Date Written: March 27, 2012
This paper demonstrates two important results related to the estimation of a competing risks model under the proportional hazards assumption with grouped duration data, a model that has become the canonical model for the termination of mortgages with prepayment and default as two competing risks. First, the model with non-parametric baseline hazards is unidentifiable with only grouped mortgage duration data. Therefore, assumption on the functional form of the baseline hazard is necessary for any meaningful inference. Second, under some parametric assumptions such as piece-wise constant baseline hazards, the sample likelihood function has an explicit analytical form. Therefore, there is no need for the approximation formula widely adopted in the previous literature. Both Monte Carlo simulations and actual mortgage data are used to demonstrate the adverse impact of the approximation.
Keywords: proportional hazards, competing risks
Suggested Citation: Suggested Citation
An, Mark Yuying and Qi, Zhikun, Competing Risks Models Using Mortgage Duration Data Under the Proportional Hazards Assumption (March 27, 2012). Journal of Real Estate Research, Vol. 34, No. 1, 2012. Available at SSRN: https://ssrn.com/abstract=2029670