This study investigates the effect of changing macroeconomic variables on the delinquency rate on commercial real estate loans between Quarter 1, 1991 and Quarter 3, 2019. We use the Vasicek one-factor Gaussian copula model to examine the delinquency rate on commercial real estate loans. We find four macroeconomic variables, unemployment rate, 10Y and 2Y yield spread, Home Price Index growth rate and average nonfinancial firms’ debt to equity ratio, to be best fit in the model. We further perform sensitivity analysis and conduct stress tests to identify how value variation of macroeconomic factors influence the predicted delinquency rate and conclude that financial institutions should always keep enough capital to prevent liquidity issues in crisis.
MSc in Finance Project-Simon Fraser University.
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