Mortgage Termination: An Empirical Hazard Model with a Stochastic Term Structure

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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Mortgage Termination: An Empirical Hazard Model with a Stochastic Term Structure

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1997 by Kluwer Academic Publishers
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1023/A:1007758412993
Publisher site
See Article on Publisher Site

References

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