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Mortgage Pricing: Some Provisional Empirical Results
Author(s) -
O'Keefe Michael,
Order Robert
Publication year - 1990
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00525
Subject(s) - prepayment of loan , coupon , economics , financial economics , econometrics , volatility (finance) , mortgage underwriting , sabr volatility model , commercial mortgage backed security , valuation of options , volatility smile , actuarial science , mortgage insurance , finance , casualty insurance , insurance policy
We test some of the qualitative properties of mortgage pricing models. The models use option pricing techniques, focusing on prepayment as a call option. They imply a quite nonlinear relationship between mortgage price and coupon, interest rates and volatility. We test for both the first and second derivatives of the effects of these variables using data on Ginnie Mae mortgage backed securities. We find that the model is largely supported by the data.