Estimating Default Probabilities of CMBS Loans With Clustering and Heavy Censoring
Journal of Real Estate Finance and Economics, Vol. 37, No. 2, 2008
27 Pages Posted: 16 Nov 2007 Last revised: 3 Feb 2011
This paper provides a comprehensive default estimation of commercial real estate loans with a complete commercial mortgage backed securites (CMBS) loan history database. Standard survival models assume that eventually every observation will experience the event. However, often there is a high proportion of censored observation in the sample. A mixture model is proposed to disentangle the probability of long-term survivorship and the timing of default occurrence. Loans within the same geographical area and property type tend to exhibit correlation in default incidence. A multilevel model is proposed to capture this correlation within and between clusters.
Keywords: multilevel mixture model, credit risk, CMBS
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