A Dynamic Double-Trigger Model of Multifamily Mortgage Default |
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Authors: | Lawrence Goldberg,& Charles A. Capone,Jr. |
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Affiliation: | Institute for Defense Analyses;, Congressional Budget Office |
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Abstract: | This study advances the commercial mortgage literature by providing theory and methods for incorporating both equity and cash-flow considerations in default models. We use local market conditions to compute a (joint) probability that default is in-the-money, based on both equity and cash-flow considerations. Statistical analysis is performed using data on multifamily mortgages originated in the 1980s and early 1990s. Simulations based on statistical modeling show advantages of the probabilistic double-trigger approach over other measures of equity and cash flow. |
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