Parameter Stability and the Valuation of Mortgages and Mortgage-Backed Securities
- Authors
- LaCour-Little, Michael; Park, Yun W.; Green, Richard K.
- Issue Date
- Mar-2012
- Publisher
- WILEY-BLACKWELL
- Citation
- REAL ESTATE ECONOMICS, v.40, no.1, pp 23 - 63
- Pages
- 41
- Journal Title
- REAL ESTATE ECONOMICS
- Volume
- 40
- Number
- 1
- Start Page
- 23
- End Page
- 63
- URI
- https://scholarworks.bwise.kr/cau/handle/2019.sw.cau/20930
- DOI
- 10.1111/j.1540-6229.2011.00313.x
- ISSN
- 1080-8620
1540-6229
- Abstract
- The recent financial crisis was triggered by large and unexpected losses on mortgages and mortgage-related securities. Here we examine model risk arising from innovations in mortgage markets and the effect on asset values. In particular, we examine the effect of parameter instability in the prepayment function. Using carefully constructed microdata, we find that the refinancing propensity was greater in 1998 for a 1997 issue given the same incentives, compared to the 1993 performance of a 1992 issue. The associated change in cash flow patterns produces economically significant changes in asset prices. Results are robust to alternative term structure models.
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- Appears in
Collections - College of Business & Economics > School of Business Administration > 1. Journal Articles
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