scholarly journals Option-based valuation of mortgage-backed securities

2010 ◽  
Vol 55 (186) ◽  
pp. 42-66 ◽  
Author(s):  
Ana Manola ◽  
Branko Urosevic
Keyword(s):  
Default Risk ◽  
Global Financial Crisis ◽  
Fixed Rate ◽  
Binomial Tree ◽  
Default Rates ◽  
Proposed Model ◽  
Mortgage Backed Securities ◽  
Prepayment And Default ◽  
Pass Through ◽  
The Global Financial Crisis

Pure econometric approaches to pricing mortgage-backed securities (MBSs) - principal pricing vehicles used by financial practitioners - fail to capture their true risks. This point was powerfully driven home by the global financial crisis. Since prior to the crisis default rates of MBSs were quite modest, econometric pricing models systematically underestimated the possibility of default. As a result, MBSs were severely overvalued. It is widely believed that the global crisis was largely triggered by incorrect valuation of mortgage-backed securities. In the aftermath, it is important to revisit the foundations for pricing MBSs and to pay much closer attention to default risk. This paper introduces a comprehensive model for valuation of fixed-rate pass-through mortgagebacked securities in a simple option-based framework. In the model, we use bivariate binomial tree approach to simultaneously model prepayment and default options. Our simulation results demonstrate that the proposed model has sufficient flexibility to capture the two principal risks.

scholarly journals Predicting the Likelihood of Lodging CMBS Loan Default

2018 ◽  
Vol 60 (1) ◽  
pp. 52-68
Author(s):  
Amrik Singh
Keyword(s):  
Financial Crisis ◽  
Global Financial Crisis ◽  
Fixed Rate ◽  
Data Set ◽  
Loan Default ◽  
Coverage Ratio ◽  
Significant Relationships ◽  
Mortgage Backed Securities ◽  
Loan Defaults ◽  
The Global Financial Crisis

This study investigates whether the traditional underwriting loan metrics, loan-to-value (LTV), debt coverage ratio (DSCR), and debt yield (DY) ratio, can predict lodging commercial mortgage-backed securities (CMBS) loan defaults. Using a data set of 5,266 fixed-rate lodging whole loans that were securitized into CMBS between 1996 and 2015, the results of the study provide evidence of significant relationships between all three metrics and the likelihood of default. The LTV varies positively with default, while the DSCR and DY are negatively related to default. These results hold for a subsample analysis of loans originated prior to the global financial crisis (GFC). Finally, the results show the DY spreads to be adequate proxies for the DY ratio.

scholarly journals A Business Failure Index Using Rank Transformation

2018 ◽  
Vol 11 (1) ◽  
pp. 56
Author(s):  
Marialuisa Restaino ◽  
Marco Bisogno
Keyword(s):  
Financial Distress ◽  
Default Risk ◽  
Global Financial Crisis ◽  
Business Failure ◽  
Failure Index ◽  
Financial Difficulties ◽  
Rank Transformation ◽  
The Global Financial Crisis ◽  
Italian Manufacturing Firms ◽  
Corporate Distress

The global financial crisis entails a renewed attention from financial institutions, academics, and practitioners to corporate distress analysis and its forecasting. This study aims to propose a model for predicting default risk based on a business failure index using rank transformation. The procedure suggested is able to capture firms’ financial difficulties and forecast bankruptcy through the construction of a failure index based on some relevant financial ratios. By means of the estimation of failure probability, it allows to classify and predict business distress in time to take mitigating action. This procedure is evaluated by some accuracy measures on a sample of Italian manufacturing firms, and is found to be a suitable instrument for preventing financial distress.

Financial Crisis and Interest Rate Pass-Through in Australia

2013 ◽  
Vol 16 (04) ◽  
pp. 1350023 ◽  
Author(s):  
Milind Sathye
Keyword(s):  
Interest Rate ◽  
Financial Crisis ◽  
Global Financial Crisis ◽  
Oecd Country ◽  
Lending Rate ◽  
Pass Through ◽  
Using Data ◽  
The Global Financial Crisis ◽  
The Impact ◽  
The Relationship

The study contributes to the extant literature on interest rate pass-through in two ways. First, we examine the impact of the global financial crisis on the historical relationship between policy rate and the home lending rate. Second, we provide evidence from a hitherto unexplored OECD country (Australia) using data from recent years and provide new insights for advancing the pass-through literature. We found complete or near-complete pass-through in the money market rates and a statistically significant temporary change in the relationship between the policy rate and home lending rate since the onset of the financial crisis.

scholarly journals How Resilient Is Mortgage Credit Supply? Evidence from the COVID-19 Pandemic

2021 ◽  
Vol 2021 (044) ◽  
pp. 1-52
Author(s):  
Andreas Fuster ◽  
◽  
Aurel Hizmo ◽  
Lauren Lambie-Hanson ◽  
James Vickery ◽  
...  
Keyword(s):  
Federal Reserve ◽  
Default Risk ◽  
Mortgage Market ◽  
Present Evidence ◽  
Credit Supply ◽  
Mortgage Credit ◽  
Mortgage Backed Securities ◽  
Historical Relationship ◽  
Pass Through ◽  
Sustained Increase

We study the evolution of USmortgage credit supply during the COVID-19 pandemic. Although the mortgage market experienced a historic boom in 2020, we show there was also a large and sustained increase in intermediation markups that limited the pass-through of lowrates to borrowers. Markups typically rise during periods of peak demand, but this historical relationship explains only part of the large increase during the pandemic. We present evidence that pandemic-related labor market frictions and operational bottlenecks contributed to unusually inelastic credit supply, and that technology-based lenders, likely less constrained by these frictions, gained market share. Rising forbearance and default risk did not significantly affect rates on “plainvanilla” conforming mortgages, but it did lead to higher spreads on mortgages without government guarantees and loans to the riskiest borrowers. Mortgage-backed securities purchases by the Federal Reserve also supported the flow of credit in the conforming segment.

7. The global financial crisis and the Eurozone sovereign debt crisis

2016 ◽  
pp. 101-118
Author(s):  
John Goddard ◽  
John O. S. Wilson
Keyword(s):  
Financial Crisis ◽  
Sovereign Debt ◽  
Global Financial Crisis ◽  
Debt Crisis ◽  
Investment Banks ◽  
Sovereign Debt Crisis ◽  
Mortgage Backed Securities ◽  
The Us ◽  
European Banks ◽  
The Global Financial Crisis

‘The global financial crisis and the Eurozone sovereign debt crisis’ describes the chain of events in the US financial crisis that then triggered the Eurozone banking collapse. It outlines the problems in US mortgage-backed securities, the collapse of three of the ‘big five’ investment banks (Bear Stearns, Lehman Brothers, and Merrill Lynch), and the actions of the US Federal Reserve and the Treasury. Several major European banks also foundered at the height of the financial crisis as a consequence of the US crisis and, by the end of 2014, five Eurozone member countries—Ireland, Greece, Spain, Portugal, and Cyprus—had received bailout loans from the EU and International Monetary Fund, conditional on the implementation of tough austerity measures.

An inverse semi-oriented radial data envelopment analysis measure for dealing with negative data

2020 ◽  
Vol 31 (4) ◽  
pp. 505-516
Author(s):  
Mojtaba Ghiyasi ◽  
Ning Zhu
Keyword(s):  
Data Envelopment Analysis ◽  
Global Financial Crisis ◽  
Returns To Scale ◽  
Data Envelopment ◽  
Negative Data ◽  
Dea Model ◽  
Proposed Model ◽  
Scale Properties ◽  
The Global Financial Crisis ◽  
Special Case

Abstract The conventional inverse data envelopment analysis (DEA) model is only applicable to positive data, while negative data are commonly present in most real-world applications. This paper proposes a novel inverse DEA model that can handle negative data. The conventional inverse DEA model is a special case of our model as our model is more general in terms of returns-to-scale properties. The proposed model is used to evaluate the efficiency of the Chinese commercial banks after the global financial crisis, where negative outputs existed. We show that our model is feasible in the presence of negative data and generates empirical findings that are consistent with reality.

The Financial Crisis and Corporate Credit Ratings

2017 ◽  
Vol 92 (4) ◽  
pp. 161-189 ◽  
Author(s):  
Ed deHaan
Keyword(s):  
Financial Crisis ◽  
Default Risk ◽  
Credit Rating ◽  
Global Financial Crisis ◽  
Credit Ratings ◽  
Theoretical Models ◽  
Financial Instruments ◽  
Rating Agencies ◽  
Corporate Credit ◽  
The Global Financial Crisis

ABSTRACT Credit ratings on many financial instruments failed to accurately portray default risk before the global financial crisis. I find no decline in the performance of corporate credit ratings during or after the crisis, indicating that the failures of ratings on financial instruments were due to conditions unique to the rating agencies' financial instruments divisions. Rather, the preponderance of tests indicate that corporate credit rating performance improves after the crisis, consistent with the rating agencies positively responding to public criticism and regulatory pressures. At the same time, I find evidence of sophisticated market participants decreasing their reliance on corporate credit ratings after the crisis. Consistent with theoretical models of reputation cyclicality, a likely explanation is that the rating agencies suffer spillover reputation damage from their failed ratings on financial instruments. My study informs regulators, practitioners, and academics about the performance of corporate credit ratings during and after the crisis, and provides novel empirical evidence consistent with reputation concerns affecting credit rating usage decisions.

Sign in / Sign up

Export Citation Format

Share Document