Estimating Default Probabilities Implicit in Commercial Mortgage Backed Securities (CMBS)

21 Pages Posted: 27 Feb 2009 Last revised: 11 Feb 2011

See all articles by James B. Kau

James B. Kau

University of Georgia - Department of Insurance, Legal Studies, Real Estate

Donald C. Keenan

University of Cergy-Pontoise; University of Georgia

Yildiray Yildirim

Zicklin School of Business, Baruch College - The City University of New York

Date Written: February 25, 2009

Abstract

This paper uses a structural credit risk model, providing an analytical formula to estimate default probabilities implicit in commercial mortgage backed security prices. Empirical studies on CMBS default have focused on the probability of default depending on loan characteristics at the origination and market indices. Recent studies show that unobservable current loan-to-value (LTV) ratio is a key state variable driving default. We update this variable using Real Estate Investment Trust (REIT) property-type indices over time. Later, we employ first passage time approach to study CMBS default using implied LTV.

Keywords: CMBS, default, structural model

Suggested Citation

Kau, James B. and Keenan, Donald C. and Yildirim, Yildiray, Estimating Default Probabilities Implicit in Commercial Mortgage Backed Securities (CMBS) (February 25, 2009). Journal of Real Estate Finance and Economics, Vol. 39, No. 2, 2009. Available at SSRN: https://ssrn.com/abstract=1349352

James B. Kau

University of Georgia - Department of Insurance, Legal Studies, Real Estate ( email )

Athens, GA 30602-6254
United States
706-542-9110 (Phone)
706-542-4295 (Fax)

Donald C. Keenan

University of Cergy-Pontoise ( email )

33 Boulevard du Port
Cergy-Pontoise Cedex, Cedex 95011
France

University of Georgia ( email )

510 Brooks Hall
Athens, GA 30602
United States
706-542-3668 (Phone)

Yildiray Yildirim (Contact Author)

Zicklin School of Business, Baruch College - The City University of New York ( email )

55 Lexington Ave., Box B13-260
New York, NY 10010
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
277
Abstract Views
1,824
rank
114,152
PlumX Metrics