Title: The Causal Effect of Mortgage Refinancing on Interest-Rate Volatility: Empirical Evidence and Theoretical Implications
Abstract: This paper investigates the effects of mortgage-backed securities (MBS) hedging activity on interest-rate volatility and proposes a model that takes these effects into account. An empirical examination suggests that the inclusion of information about MBS considerably improves model performance in pricing interest-rate options and in forecasting future interest-rate volatility. The empirical results are consistent with the hypothesis that MBS hedging affects both the interest-rate volatility implied by options and the actual interest-rate volatility. The results also indicate that the inclusion of information about the MBS universe may result in models that better describe the price of fixed-income securities.
Publication Year: 2005
Publication Date: 2005-01-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 5
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