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A Proportional Hazards Model of Commercial Mortgage Default with Originator Bias |
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| Authors: | Brian A. Ciochetti Yongheng Deng Gail Lee James D. Shilling Rui Yao |
| Affiliation: | (1) Department of Finance, University of North Carolina, Chapel Hill, NC, U.S.A.;(2) School of Policy, Planning and Development, University of Southern California, Los Angeles, CA, U.S.A.;(3) Credit Suisse First Boston, New York, NY, U.S.A.;(4) University of Wisconsin, Madison, WI, U.S.A.;(5) Department of Economics and Finance, Baruch College, New York, NY, U.S.A. |
| Abstract: | 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: | commercial mortgages default competing risks hazard model sampling bias |
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