Parameter Stability and the Valuation of Mortgages and Mortgage-Backed Securities
- Topics:
- Real Estate Services
- Tags:
- Capital Structures,
- Finance,
- Investment,
- Mortgage-backed Security,
- Mortgages,
- University Of Wisconsin,
- Valuation
- Source:
- University of Wisconsin
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Overview: The paper examines the effect of parameter instability on the valuation of mortgages and mortgage-backed securities. In particular, the paper prices 1997 issue mortgages subject to the 1998 bond market rally events assuming an empirically derived prepayment model constructed on data reflecting the 1993 experience and compares results to those that would have been obtained had actual parameter drift been captured. Using carefully constructed micro-data, we find that the refinancing propensity was greater in 1998 for a 1997 issue given the same incentives, compared to the 1993 performance of a 1992 issue.
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Format: PDF | Size: 194KB | Date: Jun 2002 | Pages: 21
