The relative termination experience of adjustable to fixed-rate mortgages
Article Abstract:
Our study uses a multinomial logit model to analyze the concurrent termination experience of adjustable-rate and fixed-rate mortgages. A new set of ARM-specific interactive determinants expands the conventional FRM specification to isolate the unique termination behavior of ARMs. We find that expected rate adjustments and large lifetime caps are positively related to ARM termination probabilities while long adjustment frequencies are inversely related. Caps, both periodic and lifetime, have a secondary, inverse effect on termination probabilities when interest-rate movements exceed cap limits. The model also shows that interest-rate expectations affect FRM terminations more strongly than ARM terminations. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1990
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The quality delivery option in Treasury bond futures contracts
Article Abstract:
This paper uses three methods to estimate quality option values for CBOT Treasury bond futures contracts. It presents evidence regarding: (1) payoffs from exercising this option at delivery, (2) estimates from a T-bond futures pricing model that incorporates this option, and (3) estimates obtained from an exchange option pricing formula. The results indicate that this option is worth considerably less than reported by Kane and Marcus (1986a). For example, payoffs obtained by switching from the bond cheapest to deliver three months prior to delivery to the one cheapest at time of delivery average less than 0.30 percentage points of par. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1990
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