The Cyclical Behavior of Interest Rates

Article Abstract:

An empirical investigation has been conducted of the relationship between deviations in consumption from the stochastic trend and real interest rate behavior. Topics discussed include the term structure of interest rates in relation to the business cycle, a model of the business cycle, the countercyclical behavior of the term spread, consumption dynamics and the maximum likelihood estimation of the consumption asset pricing model, single asset estimation results, multiple asset estimation results, nonlinear consumption asset pricing models, Hansen-Jagannathan bounds, the informativeness of the term spread, and future changes in aggregate economic activity.

Interest rates, Consumption (Economics), Business cycles

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Valuing commercial mortgages: an empirical investigation of the contingent-claims approach to pricing risky debt

Article Abstract:

This paper empirically investigates a contingent-claims model of commercial mortgage pricing. We find that the magnitude of the observed default premia for a sample of nonprepayable fixed rate bullet mortgages can be explained by the contingent-claims model. In addition, the model explains a significant proportion of the period-to-period changes in the default premia. However, given an assumed negative correlation between building value changes and interest rate changes, the model's risk structure tends to increase less steeply with increasing maturity than the observed risk structure. (Reprinted by permission of the publisher.)

Pricing, Mortgages

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Market Imperfections, Investment Flexibility, and Default Spreads

Article Abstract:

A structural model is presented that delineates default spreads for debts in which the borrower investment choice endogenously determines debt collateral, and a demand variable incorporating temporary and permanent components. Included are numerical simulations quantifying the impact of credit constraints, incentive problems, and investment flexibility on default spreads.

Models, Economic aspects, Comparative analysis, Econometric models

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