Mortgage Default Risk and Real Estate Prices: The Use of Index-Based Futures and Options in Real Estate
AbstractEvidence is shown, using US foreclosure data by state 1975-93, that periods of high default rates on home mortgages strongly tend to follow real estate price declines or interruptions in real estate price increase. The relation between price decline and foreclosure rates is modelled using a distributed lag. Using this model, holders of residential mortgage portfolios could hedge some of the risk of default by taking positions in futures or options markets for residential real estate prices, were such markets to be established.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5078.
Date of creation: Apr 1995
Date of revision:
Publication status: published as Journal of Housing Research, vol. 7, no. 2: 243-258 (1996).
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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Other versions of this item:
- Robert J. Shiller & Karl E. Case & Allan N. Weiss, 1995. "Mortgage Default Risk and Real Estate Prices: The Use of Index-Based Futures and Options in Real Estate," Cowles Foundation Discussion Papers 1098, Cowles Foundation for Research in Economics, Yale University.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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