Frictions and Mortgage Options

摘要: Mortgage researchers developing numerous hypotheses concerning the most relevant factors for mortgage valuation, have generated a wealth of recent ideas. Each new hypothesis generates an additional separate empirical test. This paper combines many features models into single options theoretic model valuing liability to borrower and asset investor. The two values are same in frictionless world. However, differ with addition frictions such as transaction costs, suboptimal termination, decision probabilities (a likelihood that will make decision). this is used evaluate frictions, either individually or simultaneously. pricing useful exploring simultaneous effects on both fixed variable costs associated prepayment default, all within framework. For example, defaulting may be hypothesized higher larger families (higher moving costs) than smaller families. Additionally, there credit rating, regardless family size.