Commercial Loan Underwriting and Option Valuation
AbstractThis article seeks to answer why over a nineteen-year period the debt-coverage ratio for commercial noninsured properties averages 1.29. The article applies the corporate liabilities extension of the Black-Scholes option pricing model to the equity valuation of a real estate project. The regression results of the modified model robustly sustain its usefulness in explaining the derivation of the debt-coverage ratio. The results confirm that commercial mortgage loan underwriters operate with a five-year horizon in creating the equity cushion needed to protect themselves against interest-rate risk.
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Bibliographic InfoArticle provided by American Real Estate Society in its journal Journal of Real Estate Research.
Volume (Year): 4 (1989)
Issue (Month): 1 ()
Contact details of provider:
Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
Web page: http://www.aresnet.org/
Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
Find related papers by JEL classification:
- L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
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- Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1980. " An Analysis of Variable Rate Loan Contracts," Journal of Finance, American Finance Association, vol. 35(2), pages 389-403, May.
- Leon G. Shilton & John Teall, 1994. "Option-Based Prediction of Commercial Mortgage Defaults," Journal of Real Estate Research, American Real Estate Society, vol. 9(2), pages 219-236.
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