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The Valuation At Origination Of Fixed Rate Mortgages With Default And Prepayment
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Book Synopsis The Valuation at Origination of Fixed Rate Mortgages with Default and Prepayment by : James B. Kau
Download or read book The Valuation at Origination of Fixed Rate Mortgages with Default and Prepayment written by James B. Kau and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a model to rationally price fixed rate mortgages, using the arbitrage principles of option pricing theory. The paper incorporates amortization, prepayment and default in valuing the mortgage. Having completely specified the model, numerical procedures value the different features of the mortgage contract under a variety of economic conditions. The necessity of having both the interest rate and the house price as explanatory variables, due to the interaction of default and prepayment, is demonstrated. The numerical solutions presented center around mortgage pricing at origination. Thus, variations in the equilibrium contract rate are examined for differing economic conditions and changes in the contract. Finally, by presenting a complete model, the paper yields insights for the existence of common institutional practices.
Book Synopsis Mortgage Default and Mortgage Valuation by : John Krainer
Download or read book Mortgage Default and Mortgage Valuation written by John Krainer and published by DIANE Publishing. This book was released on 2010-10 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: The authors develop an equilibrium valuation model that incorporates optimal default to show how mortgage yields and lender recovery rates on defaulted mortgages depend on initial loan-to-value (LTV) ratios. The analysis treats both the frictionless case and the case in which borrowers and lenders incur deadweight costs upon default. The model is calibrated using data on California mortgages. Given reasonable parameter values, the model does a surprisingly good job fitting the risk premium in the data for high LTV mortgages. Thus, from an ex ante perspective, the authors do not find strong evidence of systematic underpricing of default risk in the run-up to the housing market crisis. Charts and tables.
Book Synopsis Household Credit Usage by : B. W. Ambrose
Download or read book Household Credit Usage written by B. W. Ambrose and published by Springer. This book was released on 2007-10-29 with total page 293 pages. Available in PDF, EPUB and Kindle. Book excerpt: In response to growing interest in household finance, this collection of essays with a foreword by John Y. Campbell, studies household and consumer use of credit instruments. It shows how individual consumers and households utilize various credit alternatives in managing their consumption and savings and suggests areas for future research.
Download or read book Rise in Mortgage Defaults written by and published by DIANE Publishing. This book was released on with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis An Improved Fixed-Rate Mortgage Valuation Methodology with Interacting Prepayment and Default Options by : Nick J. Sharp
Download or read book An Improved Fixed-Rate Mortgage Valuation Methodology with Interacting Prepayment and Default Options written by Nick J. Sharp and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper considers in detail a realistic mortgage valuation model (including the potential for early prepayment and the risk of default), based on stochastic house-price and interest-rate models. As well as the development of a highly accurate numerical scheme to tackle the resulting partial differential equations, this paper also exploits singular perturbation theory (a mathematically rigorous procedure, based on the idea of the smallness of the volatilities), whereby mortgage valuation can be accurately approximated by very simple closed-form solutions. Determination of equilibrium contract rates, previously requiring many computational hours is reduced to just a few seconds, rendering this a highly useful portfolio management tool; these approximations compare favorably with the full numerical solutions. The method is of wide applicability in US or other mortgage markets and is demonstrated for UK fixed-rate mortgages, including insurance and coinsurance.
Book Synopsis Mortgage-Backed Securities by : Frank J. Fabozzi
Download or read book Mortgage-Backed Securities written by Frank J. Fabozzi and published by John Wiley & Sons. This book was released on 2010-12-30 with total page 302 pages. Available in PDF, EPUB and Kindle. Book excerpt: An in-depth look at the latest innovations in mortgage-backed securities The largest sector of the fixed-income market is the mortgage market. Understanding this market is critical for portfolio managers, as well as issuers who must be familiar with how these securities are structured. Mortgage-Backed Securities is a timely guide to the investment characteristics, creation, and analysis of residential real estate-backed securities. Each chapter contains cutting-edge information for investors, traders, and other professionals involved in this market, including discussions of structuring mortgage products-such as agency CMOs and new types of mortgages-and an in-depth explanation of the concept of option-adjusted spreads and other analytical concepts used to assess relative value.
Book Synopsis Investing in Mortgage-Backed and Asset-Backed Securities by : Glenn M. Schultz
Download or read book Investing in Mortgage-Backed and Asset-Backed Securities written by Glenn M. Schultz and published by John Wiley & Sons. This book was released on 2016-01-07 with total page 419 pages. Available in PDF, EPUB and Kindle. Book excerpt: A complete guide to investing in and managing a portfolio of mortgage- and asset-backed securities Mortgage- and asset-backed securities are not as complex as they might seem. In fact, all of the information, financial models, and software needed to successfully invest in and manage a portfolio of these securities are available to the investment professional through open source software. Investing in Mortgage and Asset-Backed Securities + Website shows you how to achieve this goal. The book draws entirely on publicly available data and open source software to construct a complete analytic framework for investing in these securities. The analytic models used throughout the book either exist in the quantlib library, as an R package, or are programmed in R and incorporated into the analytic framework used. Examines the valuation of fixed-income securities—metrics, valuation framework, and return analysis Covers residential mortgage-backed securities—security cash flow, mortgage dollar roll, adjustable rate mortgages, and private label MBS Discusses prepayment modeling and the valuation of mortgage credit Presents mortgage-backed securities valuation techniques—pass-through valuation and interest rate models Engaging and informative, this book skillfully shows you how to build, rather than buy, models and proprietary analytical platforms that will allow you to invest in mortgage- and asset-backed securities.
Book Synopsis Mortgage Valuation Models by : Andrew Davidson
Download or read book Mortgage Valuation Models written by Andrew Davidson and published by Oxford University Press. This book was released on 2014-05-22 with total page 465 pages. Available in PDF, EPUB and Kindle. Book excerpt: Mortgage-backed securities (MBS) are among the most complex of all financial instruments. Analysis of MBS requires blending empirical analysis of borrower behavior with the mathematical modeling of interest rates and home prices. Over the past 25 years, Andrew Davidson and Alexander Levin have been at the leading edge of MBS valuation and risk analysis. Mortgage Valuation Models: Embedded Options, Risk, and Uncertainty contains a detailed description of the sophisticated theories and advanced methods that the authors employ in real-world analyses of mortgage-backed securities. Issues such as complexity, borrower options, uncertainty, and model risk play a central role in the authors' approach to the valuation of MBS. The coverage spans the range of mortgage products from loans and TBA (to-be-announced) pass-through securities to subordinate tranches of subprime-mortgage securitizations. With reference to the classical CAPM and APT, the book advocates extending the concept of risk-neutrality to modeling home prices and borrower options, well beyond interest rates. It describes valuation methods for both agency and non-agency MBS including pricing new loans; approaches to prudent risk measurement, ranking, and decomposition; and methods for modeling prepayments and defaults of borrowers. The authors also reveal quantitative causes of the 2007-09 financial crisis and provide insight into the future of the U.S. housing finance system and mortgage modeling as this field continues to evolve. This book will serve as a foundation for the future development of models for mortgage-backed securities.
Book Synopsis Valuing Prepayment and Default in a Fixed Rate Mortgage by : Jimmy E. Hilliard
Download or read book Valuing Prepayment and Default in a Fixed Rate Mortgage written by Jimmy E. Hilliard and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses a bivariate binomial options pricing technique to value the prepayment and default options in a fixed-rate mortgage. The American style options are dependent on two stochastic variables: (1) house price, (2) one year spot rate. The paper uses the standard lognormal process for house price and the CIR square-root process for interest rates. By forcing the two underlying state variables to undergo transformations, two new uncorrelated variables with constant volatilities are established. With constant volatilities, a computationally simple bivariate binomial tree is formed which greatly reduces the complexity of working with two state variables and is pedagogicallyuseful. Using this procedure, the price of any real estate contingent claim whose value is dependent on the one year spot rate and house price can be determined. Results are compared with those from a finite difference model.
Book Synopsis Option Theory and Fixed Rate Mortgages by :
Download or read book Option Theory and Fixed Rate Mortgages written by and published by . This book was released on 1986 with total page 130 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Prepayment and the Valuation of Mortgage Backed Securities by : Eduardo S. Schwartz
Download or read book Prepayment and the Valuation of Mortgage Backed Securities written by Eduardo S. Schwartz and published by . This book was released on 1988 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Fixed-Rate Endowment Mortgage and Mortgage Indemnity Valuation by : José António de Azevedo Pereira
Download or read book Fixed-Rate Endowment Mortgage and Mortgage Indemnity Valuation written by José António de Azevedo Pereira and published by . This book was released on 2008 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: Fixed rate endowment mortgages differ from fixed rate repayment mortgages primarily because, in the event of early termination, the amount owed by the borrower is a function of the evolution of the term structure of interest rates, whereas for a repayment mortgage it is pre-determined.We use a contingent claims framework for valuing the embedded options in certain British fixed-rate endowment mortgages, with a (capped) mortgage indemnity guarantee (MIG). We assume a mean-reverting interest rate and a lognormal house price diffusion process to arrive at a partial differential equation as the basis of the contingent claims and include conventional mortgage terms such as arrangement fees and prepayment penalties. This methodology provides a template for the borrower, lender and insurer to compare mortgage terms, including the fairness of contract rates, fees and any MIG premiums required, when borrowing more than 75% of the house value at origination. Given the conventional terms and the diffusion processes, we assume the parties have common expectations for some diffusion parameters, including expected future rate and price volatilities. Also we assume that borrowers are 'economic actors' regarding default and prepayment options, and that factors such as mobility, divorce, unemployment, and transaction costs are deterministic and can be ignored in this model, along with moral hazard problems between the insurer and the lender. Since the partial differential equation incorporating the general features of these mortgage contracts does not have a closed-form solution, an explicit finite difference method is used for the valuation (and sensitivity) results. We provide graphical representations (and interpretations) of each mortgage component as a function of house prices and interest rate levels. After empirical studies on the input parameters, each mortgage component may be compared with 'market values'. This model may also be useful as a 'mark-to-value' proxy for all parties, as expected parameters change (especially interest rate and house price levels, and expected future volatilities), for purposes of determining 'value added accounting', appropriate reserves, and indeed for setting premiums and business decisions. Finally, we compare endowment and repayment mortgages for different levels of loan-to-value ratios, interest rate and house price volatility.
Book Synopsis Introduction to Mortgages and Mortgage Backed Securities by : Richard K. Green
Download or read book Introduction to Mortgages and Mortgage Backed Securities written by Richard K. Green and published by Academic Press. This book was released on 2013-11-21 with total page 249 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Introduction to Mortgages & Mortgage Backed Securities, author Richard Green combines current practices in real estate capital markets with financial theory so readers can make intelligent business decisions. After a behavioral economics chapter on the nature of real estate decisions, he explores mortgage products, processes, derivatives, and international practices. By focusing on debt, his book presents a different view of the mortgage market than is commonly available, and his primer on fixed-income tools and concepts ensures that readers understand the rich content he covers. Including commercial and residential real estate, this book explains how the markets work, why they collapsed in 2008, and what countries are doing to protect themselves from future bubbles. Green's expertise illuminates both the fundamentals of mortgage analysis and the international paradigms of products, models, and regulatory environments. Written for buyers of real estate, not mortgage lenders Balances theory with increasingly complex practices of commercial and residential mortgage lending Emphasizes international practices, changes caused by the 2008-11 financial crisis, and the behavioral aspects of mortgage decision making
Book Synopsis A Trinomial Model for the Valuation of the Prepayment and Default Options in Fixed-rate Mortgages with an Application to Low-income Housing Projects in the Washington Metropolitan Area by : Imad Atef Elhaj
Download or read book A Trinomial Model for the Valuation of the Prepayment and Default Options in Fixed-rate Mortgages with an Application to Low-income Housing Projects in the Washington Metropolitan Area written by Imad Atef Elhaj and published by . This book was released on 19?? with total page 196 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis A Contingent Claims Valuation and Simulation Analysis of Standard Fixed Payment and Variable Rate Mortgage Loans by : Chung-Sik Chang
Download or read book A Contingent Claims Valuation and Simulation Analysis of Standard Fixed Payment and Variable Rate Mortgage Loans written by Chung-Sik Chang and published by . This book was released on 1981 with total page 418 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Rational Mortgage Valuation Using Optimal Refinancing Strategies and Heterogeneous Borrowers by : John Patrick Harding
Download or read book Rational Mortgage Valuation Using Optimal Refinancing Strategies and Heterogeneous Borrowers written by John Patrick Harding and published by . This book was released on 1994 with total page 414 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Mortgage and Mortgage-backed Securities Markets by : Frank J. Fabozzi
Download or read book Mortgage and Mortgage-backed Securities Markets written by Frank J. Fabozzi and published by Harvard Business Review Press. This book was released on 1992 with total page 360 pages. Available in PDF, EPUB and Kindle. Book excerpt: The U.S. mortgage market, estimated at roughly $3.7 trillion, easily exceeds the values of the U.S. government bond market. Daily trading alone runs in the billions of dollars, and the value of mortgage-backed securities now outstanding is more than $1 trillion. The vastness of this market has inspired a variety of financial innovations, both in the design of mortgages and in the securities that derive from them. These innovations--adjustable rate mortgages (ARMs) and mortgage-backed securities (MBSs), which include passthroughs, collateralized mortgage obligations (CMOs), stripped MBSs, and so forth--have been a great success, created a large and growing industry, and demonstrated how financial engineering can redirect cash flows from a pool of assets to more closely satisfy the asset/liability needs of different classes of institutional investors. MBSs have proven to be a useful model for other forms of asset securitizations such as securities based on auto loans and credit card receivables. Mortgage-backed securities provide many useful benefits to both issuers and investors, but they are among the most complex of securities and appear in many interesting puzzling forms. Success in issuing, trading, and investing in MBSs requires a thorough understanding of their pricing and management of prepayment risks, and Professors Fabozzi and Modigliani have made an important contribution to that understanding in this important new book, . In this state-of-the-art treatment, Frank Fabozzi and Franco Modigliani offer the first book to systematically address the complex subject of mortgages and mortgage-backed securities without being unduly mathematical. Beginning with the basic mortgage, theauthors explain the development of the secondary mortgage market. They show how the market has been transformed from total dependence on local deposits to a market with a broad base of investors in the United States, Europe, and Japan. The business of mortgage origination, servicing, insurance, mortgage pooling, and the historical origins of securitization are fully described. The authors take the reader through the procedure for pricing traditional bonds to the complex process of valuing a variety of mortgage-backed securities. Because the borrower/homeowner has an option to prepay part or all of the mortgage at any time, yields and prices on these instruments can vary dramatically. The conventions used in this market for estimating prepayments are discussed and critically evaluated, as are the factors that affect prepayments. Fabozzi and Modigliani provide a review of the fundamental principles used in valuing fixed-income securities, then extend them to the various frames of analysis used in determining values for MBSs. This book fills an important need for mortgage bankers, institutional investors, and other financial professionals who need to understand the mortgage market and its complex instruments.
