Mortgage Terminations: The Role of Conditional Volatility

Topics:
Market Studies
Tags:
Finance,
Interest Rate,
Investment,
Mortgage,
Termination,
Volatility
Source:
California State University, Fullerton - College of Business and Economics

FREE Registration is required

Overview: Studies of mortgage termination decisions typically rely on a competing risks framework comparing defaults and prepayments. While useful tools have been developed to approximate the values of these competing default and prepayment options, the available metrics do not adequately account for the role of the conditional volatility of interest rates and housing prices in option valuation. Using a sample of 1,428 mortgage loan payment histories, this study finds that exponential GARCH estimates of the conditional volatility of housing prices and interest rates influence mortgage termination decisions in a predictable manner. Specifically, increased housing price volatility is shown to enhance default option values, while increased interest rate volatility is shown to enhance prepayment option values. Therefore, it would appear that conditional volatility represents a more refined input into the competing risks option framework.

(Is this item miscategorized? Does it need more tags? Let us know.)

Format: PDF | Size: 115KB | Date: Jan 2002 | Pages: 22

People who downloaded this item also downloaded

White Paper The Secondary Market for Subprime Mortgages
White Paper Mortgage Backed Securities
White Paper Securistisation of Insurance Risk
White Paper Commercial Mortgage-backed Securities: Prepayment and Default
White Paper The Effects of Purchases of Mortgages and Securitization

Top results from Market Studies

Case Study High-End Real Estate Company JBMRA Puts Brokers in Prime Position to Increase Sales with Microsoft Dynamics CRM Live
White Paper Next-Generation, Low-Latency Front-Office Computing for Capital Markets
White Paper Testing Alternative Theories of the Property Price - Trading Volume Correlation
White Paper Real Estate Industry Poised for Recovery Despite Slowing Economy
White Paper In An Uncertain Economy, Real Estate Holds Its Ground

» View all Market Studies listings

advertisement
advertisement
  • Click Here
  • Click Here
  • Click Here
advertisement

Returning users: Log In Here!

Already registered on BNET, TechRepublic, or ZDNet? Simply log in.

Free Membership: Sign Up Now!

Sign up for a free membership today and get instant and unlimited access to one of the largest databases of white papers, webcasts, and casestudies anywhere. Your FREE membership allows you to:

  • Download an unlimited amount of content, including classic and current white papers, case studies, webcasts and more
  • Track content on your chosen topics of interest
  • Receive targeted email alerts when your favorite content is added
  • Save content for future reading
  • Receive our member newsletter

When you register to access this directory, you become a member of BNET. In addition, you allow us to share your information with companies that produce products or services featured in the library--so that such companies may contact you with information and offers regarding their products and services. This enables us to keep the library a free service. As a directory registrant, you will receive a complimentary subscription to the BNET member newsletter, The BNET Report. You can unsubscribe from this newsletter at any time. By clicking the Sign up button, you indicate that you agree to our Terms and Conditions and have read and understand our Privacy Policy (updated).