Related papers: Mortgage Contracts and Underwater Default
In this paper, we investigate the impact of mortgage rates on home prices, and how the impact may be used to help property purchase discussions at individual buyer level and to adjust home price indices across time. A mortgage-rate-adjusted…
We perform a detailed theoretical study of the value of a class of participating policies with four key features: $(i)$ the policyholder is guaranteed a minimum interest rate on the policy reserve; $(ii)$ the contract can be terminated by…
We discuss the pricing of defaultable assets in an incomplete information model where the default time is given by a first hitting time of an unobservable process. We show that in a fairly general Markov setting, the indicator function of…
We consider a new family of derivatives whose payoffs become strictly positive when the price of their underlying asset falls relative to its historical maximum. We derive the solution to the discretionary stopping problems arising in the…
The special and important problems of default prediction for municipal bonds are addressed using a combination of text embeddings from a pre-trained transformer network, a fully connected neural network, and synthetic oversampling. The…
This paper generalizes the framework for arbitrage-free valuation of bilateral counterparty risk to the case where collateral is included, with possible re-hypotecation. We analyze how the payout of claims is modified when collateral…
Many-to-many matching with contracts is studied in the framework of revealed preferences. All preferences are described by choice functions that satisfy natural conditions. Under a no-externality assumption individual preferences can be…
Does the ability to pledge an asset as collateral, after purchase, affect its price? This paper identifies the impact of collateral service flows on house prices, exploiting a plausibly exogenous constitutional amendment in Texas which…
We develop a deep learning model of multi-period mortgage risk and use it to analyze an unprecedented dataset of origination and monthly performance records for over 120 million mortgages originated across the US between 1995 and 2014. Our…
With the widespread application of machine learning in financial risk management, conventional wisdom suggests that longer training periods and more feature variables contribute to improved model performance. This paper, focusing on…
We consider a continuous-time financial market with no arbitrage and no transactions costs. In this setting, we introduce two types of perpetual contracts, one in which the payoff to the long side is a fixed function of the underlyers and…
In general, homeowners refinance in response to a decrease in interest rates, as their borrowing costs are lowered. However, it is worth investigating the effects of refinancing after taking the underlying costs into consideration. Here we…
This paper works out fair values of stock loan model with automatic termination clause, cap and margin. This stock loan is treated as a generalized perpetual American option with possibly negative interest rate and some constraints. Since…
This paper studies optimal Public Private Partnerships contract between a public entity and a consortium, in continuous-time and with a continuous payment, with the possibility for the public to stop the contract. The public ("she") pays a…
In recent years Australia has observed a growing, unexplained resilience of increasing house price trends. Here, we seek to understand what is driving Australia's indestructible asset using insights from market experts. We construct a…
We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…
In a dynamic economy, we characterize the fiscal policy of the government when it levies distortionary taxes and issues defaultable bonds to finance its stochastic expenditure. Default may occur in equilibrium as it prevents the government…
The Consumer Financial Protection Bureau defines the notion of payoff amount as the amount that has to be payed at a particular time in order to completely pay off the debt, in case the lender intends to pay off the loan early, way before…
Variable annuities (VA) are popular insurance products. VAs provides the insured with a guaranteed accumulation rate on their premium at maturity. In addition, the insured may receive extra benefit if returns of underlying funds are high…
In this paper, we analyse some equity-linked contracts that are related to drawdown and drawup events based on assets governed by a geometric spectrally negative L\'evy process. Drawdown and drawup refer to the differences between the…