• I was very interested to see Kin's earlier work about the delinquencies versus the Frank Russell, because those of us who do a lot of work in this tend to view a commercial mortgage as a derivative product.
  • When you loan money on a mortgage, you're really buying a commercial mortgage bond.
  • What really occurred is that you bought a risk-free bond and sold a put option.
    • And the put option is on the value of the property, in that the borrower always has the right to send the keys to you in total defeasance of the debt, if it's a nonrecourse loan. And moat of these are.
  • This work is sort of an options analysis, and we're going to get to that shortly.

--  Walter C. Barnes, not a member of the Society, is on the faculty in the Real Estate Department at the University of Wisconsin-Madison and is a Principal of Mortgage Analytics in  Madison, Wisconsin

1994 - SOA - Credit Risk Study, Society of Actuaries - 20p