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A comparative analysis of the price‐process model of mortgage valuation

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  • Austin Murphy

Abstract

This paper compares the performance of the price‐process model, which efficiently sets prepayments as a function of call option values, with a traditional interest‐rate‐process model, which sets prepayments as a function of interest rate spreads. The empirical results indicate that the price‐process model is more consistent with GNMA market prices. Tests on more recent data indicate that the price‐process modeling framework has continued to be more accurate in explaining GNMA prices than other mortgage‐pricing models reported in the literature.

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  • Austin Murphy, 2000. "A comparative analysis of the price‐process model of mortgage valuation," Review of Financial Economics, John Wiley & Sons, vol. 9(2), pages 65-82, December.
    • Handle: RePEc:wly:revfec:v:9:y:2000:i:2:p:65-82
    DOI: 10.1016/S1058-3300(00)00017-3
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