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Pricing commercial mortgages and their mortgage-backed securities |
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| Authors: | James B Kau Donald C Keenan Walter J Muller III James F Epperson |
| Institution: | (1) The C. Herman and Mary Virginia Terry Distinguished Chair of Business Administration, Department of Insurance, Legal Studies and Real Estate, University of Georgia, 30602 Athens, GA, USA;(2) University of Georgia, USA;(3) NCNB National Bank, USA;(4) University of Alabama—Huntsville, USA |
| Abstract: | This article has taken considerable effort to accurately model the complexity of a commercial mortgage and its mortgage-backed security. In fact, it is the first example in the general literature on mortgage pricing to present a comprehensive set of numerical results in which the valuation of a mortgage-backed security is explicitly tied to that of the underlying mortgage. The conclusion we reach is that option pricing provides an accurate and flexible approach to valuing the complex mortgage instruments now being developed in the financial community. |
| Keywords: | Commercial-mortgage Mortgage-backed securities Option pricing |
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