A Proportional Hazards Model of Commercial Mortgage Default with Originator Bias
Posted: 4 Feb 2003
A proportional hazards model with competing risks is specified and is extended to correct for the possibility of originator bias. The model is used to examine the ability of option-theoretic models of mortgage pricing to forecast commercial mortgage defaults. Among the findings, those especially of interest include the influence of contemporaneous loan-to-value and debt-service-coverage ratios on commercial mortgage default probabilities. The paper also finds that option-theoretic models of mortgage pricing are quite capable of producing default estimates that fit the actual default rates well, especially when the model is corrected for originator bias.
Keywords: mortgages, asset pricing, bankruptcy, liquidation, prepayment, default
Suggested Citation: Suggested Citation