Comparisons and extensions of structural and reduced form approaches to the pricing of commercial real estate securities and loans in the financial crisis (2007-2010) and the recovery (2013-2014)
Descriptive Metadata
Rights Metadata
Technical Metadata
Descriptive
TitleInfo
Title
Comparisons and extensions of structural and reduced form approaches to the pricing of commercial real estate securities and loans in the financial crisis (2007-2010) and the recovery (2013-2014)
To date, the ~$1Trillion CMBS sector in the US does not actively utilize widely accepted advanced derivatives valuation methods. In the absence of risk neutral values for CMBS it is proposed here that risks of default were neither correctly anticipated nor priced in the Crisis (11/2007-12/2010) nor in the Recovery (1/2013-3/2014), thus far. If schisms between market and model prices enable one to secure excess returns then one may reasonably question the weak form efficiency of the CMBS sector. To investigate, I apply four model approaches (structural form, reduced form, generalization of calibrated simulation, and a special case of the generalization) in both the Crisis and the Recovery using two representative loan and bond samples on a daily basis. The key findings are: First, statistical analysis demonstrates the need for the generalized approach. The special case is misspecified and inadequate to the task of modeling CMBS default risk. Second , although the structural form yields results in keeping with the generalization, it too is insensitive to risks associated with loan characteristics, borrower behavior, and bond pricing. Third , the reduced form represents a comprehensive and better approach than all others. Building off details that characterize the generalized approach, the Cox Process of the reduced form has embedded within its design the capability to accurately evaluate complex economic relationships that govern the timing and amount of loan defaults. As the reduced form economy is robust, accurate pricing at the bond level is an immediate consequence, given accurate implementation. Finally , evidence indicates a sizable disconnect between fair value and market pricing with differentiation amongst the models. Trading tests and statistical analyses suggest an inefficient CMBS market evidenced by the earning of excess returns in backtesting. This dissertation provides valuable insights pertaining to CMBS risk estimation, the pricing of those risks, and CMBS market efficiency.
Subject (authority = RUETD)
Topic
Management
Subject (authority = ETD-LCSH)
Topic
Real estate investment--Finance
Subject (authority = ETD-LCSH)
Topic
Mortgage loans--United States
Subject (authority = ETD-LCSH)
Topic
Financial crises--United States
Subject (authority = ETD-LCSH)
Topic
Commercial mortgage-backed securitisation
RelatedItem (type = host)
TitleInfo
Title
Rutgers University Electronic Theses and Dissertations
Identifier (type = RULIB)
ETD
Identifier
ETD_5813
PhysicalDescription
Form (authority = gmd)
electronic resource
InternetMediaType
application/pdf
InternetMediaType
text/xml
Extent
1 online resource (xx, 336 p. : ill.)
Note (type = degree)
Ph.D.
Note (type = bibliography)
Includes bibliographical references
Note (type = vita)
Includes vita
Note (type = statement of responsibility)
by Andreas D. Christopoulos
RelatedItem (type = host)
TitleInfo
Title
Graduate School - Newark Electronic Theses and Dissertations
Identifier (type = local)
rucore10002600001
Location
PhysicalLocation (authority = marcorg); (displayLabel = Rutgers, The State University of New Jersey)
I hereby grant to the Rutgers University Libraries and to my school the non-exclusive right to archive, reproduce and distribute my thesis or dissertation, in whole or in part, and/or my abstract, in whole or in part, in and from an electronic format, subject to the release date subsequently stipulated in this submittal form and approved by my school. I represent and stipulate that the thesis or dissertation and its abstract are my original work, that they do not infringe or violate any rights of others, and that I make these grants as the sole owner of the rights to my thesis or dissertation and its abstract. I represent that I have obtained written permissions, when necessary, from the owner(s) of each third party copyrighted matter to be included in my thesis or dissertation and will supply copies of such upon request by my school. I acknowledge that RU ETD and my school will not distribute my thesis or dissertation or its abstract if, in their reasonable judgment, they believe all such rights have not been secured. I acknowledge that I retain ownership rights to the copyright of my work. I also retain the right to use all or part of this thesis or dissertation in future works, such as articles or books.