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An Empirical Investigation of the Contingent-Claims Approach to Pricing Residential Mortgage Debt

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  • S. Michael Giliberto
  • David C. Ling

Abstract

Despite the growth of theoretical mortgage-pricing research, few empirical tests have been published. The primary objective of this paper is to provide an empirical test of the contingent-claims approach to pricing residential mortgages. This is accomplished by examining the differences between contract mortgage rates generated by the theoretical contingent-claims model and corresponding actual rates observed for 121 consecutive months from January 1981 through January 1991. We find that the contingent-claims model produces an unbiased prediction of changes in actual rates. Copyright American Real Estate and Urban Economics Association.

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Bibliographic Info

Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 20 (1992)
Issue (Month): 3 ()
Pages: 393-426

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Handle: RePEc:bla:reesec:v:20:y:1992:i:3:p:393-426

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Cited by:
  1. Harding, John P., 2000. "Mortgage Valuation with Optimal Intertemporal Refinancing Strategies," Journal of Housing Economics, Elsevier, vol. 9(4), pages 233-266, December.
  2. Archer, Wayne R. & Ling, David C. & McGill, Gary A., 1997. "Demographic versus Option-Driven Mortgage Terminations," Journal of Housing Economics, Elsevier, vol. 6(2), pages 137-163, June.
  3. Xudong An & John Clapp & Yongheng Deng, 2005. "Omitted Mobility Characteristics and Property Market Dynamics: Application to Mortgage Termination," Working Paper 8584, USC Lusk Center for Real Estate.
  4. Archer, Wayne R. & Ling, David C. & McGill, Gary A., 1996. "The effect of income and collateral constraints on residential mortgage terminations," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 235-261, June.
  5. Lee, Pei-Ting & Rosenfield, Donald B., 2005. "When to refinance a mortgage: A dynamic programming approach," European Journal of Operational Research, Elsevier, vol. 166(1), pages 266-277, October.
  6. Erwin Charlier & Arjan van Bussel, 2003. "Prepayment Behavior of Dutch Mortgagors: An Empirical Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(2), pages 165-204, 06.

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