Transaction Costs, Suboptimal Termination and Default Probabilities
AbstractThe same option-based methodology now commonly used to value mortgages and their termination features also can be applied to calculate the probabilities that mortgage default will occur. This paper pursues that idea, and furthermore, enriches the idealized option-based approach by introducing both transaction costs and "suboptimal" termination. These latter features capture the individual considerations that cause a mortgage holder's actions to differ from what rationality would indicate based solely on the market value of the mortgage. These features are of considerable importance if the results of options-based models are to be made comparable to those calculations of default probabilities occurring in the empirical literature. Copyright American Real Estate and Urban Economics Association.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.
Volume (Year): 21 (1993)
Issue (Month): 3 ()
Contact details of provider:
Postal: Indiana University, Kelley School of Business, 1309 East Tenth Street, Suite 738, Bloomington, Indiana 47405
Phone: (812) 855-7794
Fax: (812) 855-8679
Web page: http://www.blackwellpublishing.com/journal.asp?ref=1080-8620
More information through EDIRC
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Danny Ben-Shahar, 2008. "Default, Credit Scoring, and Loan-to-Value: a Theoretical Analysis under Competitive and Non-Competitive Mortgage Markets," Journal of Real Estate Research, American Real Estate Society, vol. 30(2), pages 161-190.
- George H. Lentz & Ko Wang, 1998. "Residential Appraisal and the Lending Process: A Survey of Issues," Journal of Real Estate Research, American Real Estate Society, vol. 15(1), pages 11-40.
- Seow Ong & Tien Sing & Alan Teo, 2007. "Delinquency and Default in Arms: The Effects of Protected Equity and Loss Aversion," The Journal of Real Estate Finance and Economics, Springer, vol. 35(3), pages 253-280, October.
- O. Emre Ergungor, 2009.
"Foreclosures in Ohio: does lender type matter?,"
Federal Reserve Bank of San Francisco, issue Jan.
- Richard Anderson & James VanderHoff, 1999. "Mortgage Default Rates and Borrower Race," Journal of Real Estate Research, American Real Estate Society, vol. 18(2), pages 279-290.
- Gerardi, Kristopher & Herkenhoff, Kyle F. & Ohanian, Lee E. & Willen, Paul S., 2013. "Unemployment, negative equity, and strategic default," Working Paper 2013-04, Federal Reserve Bank of Atlanta.
- Eddie Lam, 2002. "A Risk Management Model for MBS Issuers," International Real Estate Review, Asian Real Estate Society, vol. 5(1), pages 169-195.
- Danny Ben-Shahar, 2006. "Screening Mortgage Default Risk: A Unified Theoretical Framework," Journal of Real Estate Research, American Real Estate Society, vol. 28(3), pages 215-240.
- Allen C. Goodman & Brent C. Smith, 2010. "Housing default: theory works and so does policy," Working Paper 10-10, Federal Reserve Bank of Richmond.
- Goodman, Allen C. & Smith, Brent C., 2010. "Residential mortgage default: Theory works and so does policy," Journal of Housing Economics, Elsevier, vol. 19(4), pages 280-294, December.
- Russell Kashian & David Welsch, 2008. "A Regional Examination of Foreclosures," Working Papers 08-04, UW-Whitewater, Department of Economics.
- Brueckner, Jan K. & Calem, Paul S. & Nakamura, Leonard I., 2012.
"Subprime mortgages and the housing bubble,"
Journal of Urban Economics,
Elsevier, vol. 71(2), pages 230-243.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.