Bias in an empirical approach to determining bond and mortgage risk premiums

被引:8
作者
Childs, PD [1 ]
Ott, SH [1 ]
Riddiough, TJ [1 ]
机构
[1] MIT,DEPT URBAN STUDIES & PLANNING,CTR REAL ESTATE,CAMBRIDGE,MA 02139
关键词
debt valuation; option pricing; default risk; mortgage default;
D O I
10.1023/A:1007776111175
中图分类号
F8 [财政、金融];
学科分类号
0202 ;
摘要
Empirical studies of bond and commercial mortgage performance often quantify a required risk premium by examining the difference between the promised yield and the realized yield as adjusted for default occurrence. These studies omit the effects of various other sources of risk, however, including collateral asset market risk, interest rate risk, and possibly call risk. These omissions downwardly bias the empirical risk premium estimate on the debt. In this paper, we disentangle and quantify the sources of this bias by modeling secured coupon debt (the commercial mortgage) as used in the calculation of a realized investment return. We consider deterministic and stochastic interest rate economies with mortgage contracts that are either noncallable or subject to a temporary prepayment lockout period. Given realistic parameter values associated with the term structure, underlying asset dynamics, and debt contracting, we show that the magnitude of the bias can be significant.
引用
收藏
页码:263 / 282
页数:20
相关论文
共 20 条
[1]   MEASURING CORPORATE BOND MORTALITY AND PERFORMANCE [J].
ALTMAN, EI .
JOURNAL OF FINANCE, 1989, 44 (04) :909-922
[2]   ORIGINAL ISSUE HIGH-YIELD BONDS - AGING ANALYSES OF DEFAULTS, EXCHANGES, AND CALLS [J].
ASQUITH, P ;
MULLINS, DW ;
WOLFF, ED .
JOURNAL OF FINANCE, 1989, 44 (04) :923-952
[3]  
BLUME ME, 1987, FINANCIAL ANAL J, V43, P26
[4]   The pricing of multiclass commercial mortgage-backed securities [J].
Childs, PD ;
Ott, SH ;
Riddiough, TJ .
JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS, 1996, 31 (04) :581-603
[5]  
CORCORAN PJ, 1994, REAL ESTATE FINA FAL, P29
[6]   THE INVESTMENT PERFORMANCE OF LOW-GRADE BOND FUNDS [J].
CORNELL, B ;
GREEN, K .
JOURNAL OF FINANCE, 1991, 46 (01) :29-48
[7]   A THEORY OF THE TERM STRUCTURE OF INTEREST-RATES [J].
COX, JC ;
INGERSOLL, JE ;
ROSS, SA .
ECONOMETRICA, 1985, 53 (02) :385-407
[8]  
HENDERSHOTT P, 1987, J FINANCIAL SERVICES, V1, P77
[9]   VALUING DERIVATIVE SECURITIES USING THE EXPLICIT FINITE-DIFFERENCE METHOD [J].
HULL, J ;
WHITE, A .
JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS, 1990, 25 (01) :87-100
[10]  
Hull J.C., 1994, J DERIV, V2, P37, DOI [10.3905/jod.1994.407908, DOI 10.3905/JOD.1994.407908]