Estimation and status prediction in a discrete mover‐stayer model with covariate effects on stayer's probability

摘要

>A discrete‐time mover‐stayer (MS) model is an extension of a discrete‐time Markov chain, which assumes a simple form of population heterogeneity. The individuals in the population are either stayers, who never leave their initial states or movers who move according to a Markov chain. We, in turn, propose an extension of the MS model by specifying the stayer's probability as a logistic function of an individual's covariates. Such extension has been recently discussed for a continuous time MS but has not been considered before for a discrete time one. This extension allows for an in‐sample classification of subjects who never left their initial states into stayers or movers. The parameters of an extended MS model are estimated using the expectation‐maximization algorithm. A novel bootstrap procedure is proposed for out of sample validation of the in‐sample classification. The bootstrap procedure is also applied to validate the in‐sample classification with respect to a more general dichotomy than the MS one. The developed methods are illustrated with the data set on installment loans. But they can be applied more broadly in credit risk area, where prediction of creditworthiness of a loan borrower or lessee is of major interest.