Abstract: Abstract This chapter provides an introduction to structural and reduced form modeling of mortgage termination. The theory and functional form for each model is discussed as well as empirical results. Structural models, also known as option-pricing models, have long been the standard for estimating default and prepayment in relation to mortgage valuation but they often project terminations that deviate from empirical observations. The recent literature on mortgage termination has alternatively adopted a reduced form modeling approach where default and prepayment projections are derived from past observations thus allowing researchers to avoid rigid assumptions about when and why a borrower terminates a mortgage. The chapter also provides a brief overview of other recent topics in the mortgage termination literature.
Publication Year: 2014
Publication Date: 2014-09-08
Language: en
Type: book-chapter
Indexed In: ['crossref']
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