In this study, we propose a method based on large deviation theory (LDT), which minimises credit risk (expected loss). We demonstrate how mortgage loan portfolios can be optimised using geographical differences in the risk characteristics of mortgage loans in the UK. Our empirical results show...

We investigate if house prices are affected by overconfidence of households who predict house prices using imperfect public information about economic outlook. For this purpose, we develop a new measure of household overconfidence in the Bayesian framework. For the three variables we test –...