Count Data Models for Financial Data

To appear in G.S. Maddala and C.R. Rao ed., Handbook of Statistics: Statistical Methods in Finance, NorthHolland. In some financial studies the dependent variable is a count, taking nonnegative integer values. Examples include the number of takeover bids received by a target firm, the number of unpaid credit installments (useful in credit scoring), the number of accidents or accident claims (useful in determining insurance premia) and the number of mortgage loans prepaid (useful in pricing mortgage-backed securities). Models for count data, such as Poisson and negative binomial are presented, with emphasis placed on the underlying count process and links to dual data on durations. A self-contained discussion of regression techniques for the standard models is given, in the context of financial applications.