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A Dynamic Double‐Trigger Model of Multifamily Mortgage Default
Author(s) -
Goldberg Lawrence,
Capone, Jr. Charles A.
Publication year - 2002
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00031
Subject(s) - cash flow , equity (law) , probabilistic logic , economics , econometrics , statistical model , financial economics , actuarial science , computer science , finance , artificial intelligence , political science , law
This study advances the commercial mortgage literature by providing theory and methods for incorporating both equity and cash‐flow considerations in default models. We use local market conditions to compute a (joint) probability that default is in‐the‐money, based on both equity and cash‐flow considerations. Statistical analysis is performed using data on multifamily mortgages originated in the 1980s and early 1990s. Simulations based on statistical modeling show advantages of the probabilistic double‐trigger approach over other measures of equity and cash flow.