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Credit risk findings for commercial real estate loans using the reduced form

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  • Christopoulos, Andreas D.
  • Barratt, Joshua G.

Abstract

This paper considers probability of default and expected loss profiles of 25,019 mortgages collateralized by commercial real estate properties evaluated using a reduced form model on a daily basis over the period November 2007 through January 2015. Our evaluations provide a compact and valuable set of insights to build intuition on credit risks facing CMBS investors.

Suggested Citation

  • Christopoulos, Andreas D. & Barratt, Joshua G., 2016. "Credit risk findings for commercial real estate loans using the reduced form," Finance Research Letters, Elsevier, vol. 19(C), pages 228-234.
    • Handle: RePEc:eee:finlet:v:19:y:2016:i:c:p:228-234
    DOI: 10.1016/j.frl.2016.08.004
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    References listed on IDEAS

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    1. Robert A. Jarrow & David Lando & Fan Yu, 2008. "Default Risk And Diversification: Theory And Empirical Implications," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 19, pages 455-480, World Scientific Publishing Co. Pte. Ltd..
    2. Bauer, Julian & Agarwal, Vineet, 2014. "Are hazard models superior to traditional bankruptcy prediction approaches? A comprehensive test," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 432-442.
    3. David Heath & Robert Jarrow & Andrew Morton, 2008. "Bond Pricing And The Term Structure Of Interest Rates: A New Methodology For Contingent Claims Valuation," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 13, pages 277-305, World Scientific Publishing Co. Pte. Ltd..
    4. Robert A. Jarrow & Stuart M. Turnbull, 2008. "Pricing Derivatives on Financial Securities Subject to Credit Risk," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 17, pages 377-409, World Scientific Publishing Co. Pte. Ltd..
    5. Medema, Lydian & Koning, Ruud H. & Lensink, Robert, 2009. "A practical approach to validating a PD model," Journal of Banking & Finance, Elsevier, vol. 33(4), pages 701-708, April.
    6. Driessen, Joost & Van Hemert, Otto, 2012. "Pricing of commercial real estate securities during the 2007–2009 financial crisis," Journal of Financial Economics, Elsevier, vol. 105(1), pages 37-61.
    7. Andreas D. Christopoulos & Robert A. Jarrow & Yildiray Yildirim, 2008. "Commercial Mortgage‐Backed Securities (CMBS) and Market Efficiency with Respect to Costly Information," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 36(3), pages 441-498, September.
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    Cited by:

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    2. Beata Ślusarczyk & Katarzyna Grondys, 2019. "Parametric Conditions of High Financial Risk in the SME Sector," Risks, MDPI, vol. 7(3), pages 1-17, August.

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    More about this item

    Keywords

    CMBS; Credit risk; Financial crisis; Mortgages; MBS; Default; PD; Expected loss;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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