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Mortgage Default Risk and Real Estate Prices: The Use of Index-Based Futures and Options in Real Estate

  • Karl E. Case
  • Robert J. Shiller
  • Allan N. Weiss

Evidence 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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File URL: http://www.nber.org/papers/w5078.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5078.

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Date of creation: Apr 1995
Date of revision:
Publication status: published as Journal of Housing Research, vol. 7, no. 2: 243-258 (1996).
Handle: RePEc:nbr:nberwo:5078
Note: AP
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Web page: http://www.nber.org
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  1. Karl E. Case & Robert J. Shiller & Allan N. Weiss, 1991. "Index-Based Futures and Options Markets in Real Estate," Cowles Foundation Discussion Papers 1006, Cowles Foundation for Research in Economics, Yale University.
  2. Johnston, Elizabeth Tashjian & McConnell, John J, 1989. "Requiem for a Market: An Analysis of the Rise and Fall of a Financial Futures Contract," Review of Financial Studies, Society for Financial Studies, vol. 2(1), pages 1-23.
  3. Robert J. Shiller & Allan N. Weiss, 1994. "Home Equity Insurance," Cowles Foundation Discussion Papers 1074, Cowles Foundation for Research in Economics, Yale University.
  4. Karl E. Case & Robert J. Shiller, 1988. "The Efficiency of the Market for Single-Family Homes," NBER Working Papers 2506, National Bureau of Economic Research, Inc.
  5. Kau James B. & Keenan Donald C. & Kim Taewon, 1994. "Default Probabilities for Mortgages," Journal of Urban Economics, Elsevier, vol. 35(3), pages 278-296, May.
  6. John P. Herzog & James S. Earley, 1970. "Home Mortgage Delinquency and Foreclosure," NBER Books, National Bureau of Economic Research, Inc, number herz70-1, August.
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