A Proportional Hazards Model of Commercial Mortgage Default with Originator Bias

Posted: 4 Feb 2003

See all articles by Brian A. Ciochetti

Brian A. Ciochetti

Independent

Rui Yao

Baruch College - Department of Economics and Finance

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison

Gail Lee

Credit Suisse First Boston

James D. Shilling

DePaul University; National Bureau of Economic Research (NBER)

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: mortgages, asset pricing, bankruptcy, liquidation, prepayment, default

Suggested Citation

Ciochetti, Brian A. and Yao, Rui and Deng, Yongheng and Lee, Gail and Shilling, James D., A Proportional Hazards Model of Commercial Mortgage Default with Originator Bias. Available at SSRN: https://ssrn.com/abstract=351120

Brian A. Ciochetti

Independent

Rui Yao

Baruch College - Department of Economics and Finance ( email )

One Bernard Baruch Way
Box B10-225
New York, NY 10010
United States
646-312-3494 (Phone)
646-312-3451 (Fax)

HOME PAGE: http://zicklin.baruch.cuny.edu/faculty/profiles/yao.html

Yongheng Deng (Contact Author)

Wisconsin School of Business, University of Wisconsin-Madison ( email )

4110 Grainger Hall
975 University Avenue
Madison, WI 53706
United States
+1 (608) 262-4865 (Phone)

HOME PAGE: http://bus.wisc.edu/faculty/yongheng-deng

Gail Lee

Credit Suisse First Boston ( email )

11 Madison Avenue
New York, NY 10010
United States

James D. Shilling

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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