The Pricing Analysis Of Commercial Mortgages And CMBS

Commercial mortgage-backed securities (CMBS) are a type of mortgage-backed security backed by mortgages on commercial. In a CMBS transaction, many single mortgage loans of varying size, property type and location are pooled and issued as a series of bonds. Then, the various bond classes are assigned by nationally recognized rating agencies. According to the rating, Investment Bankers decide how much CMBS are. The incomes from CMBS are returned to the borrowers to pay the loan, while the yield as companies'operating capital.This paper discribes the definition of commercial mortgage-backed securities, and lists the domestic and foreign references on CMBS. With the option pricing method, the model can be divided into two parts: single property CMBS and multiclass CMBS. Default boundary is focused. Becaused there is no analytic solution, numerical solutions are considered, such as Monte Carlo Method and Trinomial Tree. To price multiclass CMBS, the two-stage method is introduced. The first stage is to comfirm the optimal default boundary of borrowers. If the property value exceeds the critical value, borrowers pay loans; otherwise, default occurs, and the property value as principal flows into the pool. The second stage is to compute the paths of the state variable with Monte Carlo method. The cash flows of tranchs are assigned by computed default boundary and realized paths. Last, calculate yield spreads between computed yields and the benchmark yield.In this paper, values of relevant parameters are variable in order to analyze how the results are affected. For single property CMBS, LTV has greater influence on CMBS, compared with other factors. The value of default option, interest rate and the volatility of property price change in the same direction, but mortgage value changes in the opposite direction compared with interest rate and the volatility of property price. For multiclass CMBS, different structures induce different yields. The higher ranking tranch will obtain the lower yield. Meanwhile, yield spread is influenced by the correlations of mortgaged properties and the volatility.