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This content will become publicly available on January 1, 2026

Title: Mortgage Prepayment Modeling via a Smoothing Spline State Space Model
Loan behavior modeling is crucial in financial engineering. In particular, predicting loan prepayment based on large-scale historical time series data of massive customers is challenging. Existing approaches, such as logistic regression or nonparametric regression, could only model the direct relationship between the features and the prepayments. Motivated by extracting the hidden states of loan behavior, we propose the smoothing spline state space (QuadS) model based on a hidden Markov model with varying transition and emission matrices modeled by smoothing splines. In contrast to existing methods, our method benefits from capturing the loans’ unobserved state transitions, which not only increases prediction performances but also provides more interpretability. The overall model is learned by EM algorithm iterations, and within each iteration, smoothing splines are fitted with penalized least squares. Simulation studies demonstrate the effectiveness of the proposed method. Furthermore, a real-world case study using loan data from the Federal National Mortgage Association illustrates the practical applicability of our model. The QuadS model not only provides reliable predictions but also uncovers meaningful, hidden behavior patterns that can offer valuable insights for the financial industry.  more » « less
Award ID(s):
2318809 1903226 2124493 2319279 2311297 1925066
PAR ID:
10592419
Author(s) / Creator(s):
; ; ; ; ; ; ;
Publisher / Repository:
School of Statistics and the Center for Applied Statistics, Renmin University of China.
Date Published:
Journal Name:
Journal of Data Science
ISSN:
1680-743X
Page Range / eLocation ID:
1 to 14
Format(s):
Medium: X
Sponsoring Org:
National Science Foundation
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