The Performance of Default Risk Structural Models on Commercial Mortgages: An Empirical Investigation

Richard Green (), George M. Jabbour and Yi-Kang Liu
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George M. Jabbour: The George Washington University School of Business
Yi-Kang Liu: Pentagon Federal Credit Union

Working Papers from School of Business, The George Washington University

Abstract: This paper uses the first-passage-time approach to estimate default probabilities of commercial mortgages and the Receiver Operating Characteristic (ROC) approach to empirically test the cash flow proposition of Vandell (1995). The focus is on comparing the performance between a single trigger model and a double-trigger model. Using 17,616 lockout commercial loans issued between 1995 and 2001, we find the property value model performs the best. In addition, the results provide a partial support to the cash flow proposition.

Date: 2006-12
New Economics Papers: this item is included in nep-rmg and nep-ure
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