A Proportional Hazards Model of Commercial Mortgage Default with Originator Bias

Brian A. Ciochetti, Yongheng Deng, Gail Lee, James D. Shilling and Rui Yao

The Journal of Real Estate Finance and Economics, 2003, vol. 27, issue 1, 5-23

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. Copyright 2003 by Kluwer Academic Publishers

Date: 2003
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