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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.

Suggested Citation

  • S. Michael Giliberto & David C. Ling, 1992. "An Empirical Investigation of the Contingent‐Claims Approach to Pricing Residential Mortgage Debt," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(3), pages 393-426, September.
    • Handle: RePEc:bla:reesec:v:20:y:1992:i:3:p:393-426
    DOI: 10.1111/1540-6229.00589
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    Cited by:

    1. 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.
    2. 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, June.
    3. Xudong An & John Clapp & Yongheng Deng, 2010. "Omitted Mobility Characteristics and Property Market Dynamics: Application to Mortgage Termination," The Journal of Real Estate Finance and Economics, Springer, vol. 41(3), pages 245-271, October.
    4. 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.
    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. Harding, John P., 2000. "Mortgage Valuation with Optimal Intertemporal Refinancing Strategies," Journal of Housing Economics, Elsevier, vol. 9(4), pages 233-266, December.
    7. Sven Balder & Wolf Christoph Gramatke & Antje Mahayni & Gordon Müller-Seitz & Jörg Sydow, 2014. "Bewertung von Kündigungsrechten in der privaten Wohnungsbaufinanzierung — Über den separaten Ausweis von Margen- und Kursschäden," Schmalenbach Journal of Business Research, Springer, vol. 66(1), pages 3-36, February.

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