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Article: The termination of commercial mortgage contracts through prepayment and default: a proportional hazard approach with competing risks.
- Article from:
- Real Estate Economics
- Article date:
- December 22, 2002
- Author:
CopyrightCOPYRIGHT 2002 American Real Estate & Economics Association. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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This article examines the factors driving the borrower's decision to terminate commercial mortgage contracts with the lender through either prepayment or default. Using loan-level data, we estimate prepayment and default functions in a proportional hazard framework with competing risks, allowing us to account for unobserved heterogeneity. Under a strict definition of mortgage default, we do not find evidence to support the existence of unobserved heterogeneity. However, when the definition of mortgage default is relaxed, we do find some evidence of two distinctive borrower groups. Our results suggest that the values of implicit put and call options drive default and ...