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Frictions, Heterogeneity and Optimality in Mortgage Modeling

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  • Kau, James B
  • Slawson, V Carlos, Jr

Abstract

The purpose of this article is to provide a unified framework for incorporating frictions into a theoretical options-pricing model (OPM) for mortgages. This article presents formulation for a frictions-adjustable mortgage model that integrates borrower heterogeneity while simultaneously preserving prepayment and default financial decisions. Our model demonstrates the flexibility of the OPM by simulating separate and concurrent effects of three categories of frictions on the mortgage and mortgage components. Researchers can use our example formulation to determine the effects of specific borrower characteristics on mortgage values without destroying the options theoretic framework. Copyright 2002 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Real Estate Finance & Economics.

Volume (Year): 24 (2002)
Issue (Month): 3 (May)
Pages: 239-60

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Handle: RePEc:kap:jrefec:v:24:y:2002:i:3:p:239-60

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Web page: http://www.springerlink.com/link.asp?id=102945

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Cited by:
  1. Sanders, Anthony B. & Slawson, V. Carlos, Jr., 2005. "Shared Appreciation Mortgages: Lessons from the UK," Working Paper Series 2005-16, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  2. Sanders, Anthony B. & Slawson, V. Jr., 2005. "Shared appreciation mortgages: Lessons from the UK," Journal of Housing Economics, Elsevier, vol. 14(3), pages 178-193, September.

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