Mortgage Termination: An Empirical Hazard Model with a Stochastic Term Structure
Pricing for mortgage and mortgage-backed securities is complicated due to the stochastic and interdependent nature of prepayment and default risks. This paper presents a unified economic model of the contingent claims and competing risks of mortgage termination by prepayment and default. I adopt a proportional hazard framework to analyze these competing and interdependent risks in a model with time-varying covariates. The paper incorporates a stochastic interest rate model into the hazard function for prepayment. The empirical results reported in the paper provide new evidence about the ruthlessness of default and prepayment behavior and the sensitivity of these decisions to demographic as well as financial phenomena. The results also illustrate that evaluating the interest rate contingent claims with a stochastic term structure has effects on predicting not only the mortgage prepayment behavior but also the mortgage default behavior. Copyright 1997 by Kluwer Academic Publishers
If 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.
Volume (Year): 14 (1997)
Issue (Month): 3 (May)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/regional+science/journal/11146/PS2|
When requesting a correction, please mention this item's handle: RePEc:kap:jrefec:v:14:y:1997:i:3:p:309-31. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.