In this study we incorporate sticky rents into a real options model to rationalize the widely documented overbuilding puzzle in real estate markets. Given the assumption that developers' objective function is to maximize total revenue by selecting an optimal occupancy level, our model provides a...

US mortgage markets have evolved radically in recent years. An important part of the change has been the rise of the “subprime” market, characterized by loans with high default rates, dominance by specialized subprime lenders rather than full-service lenders, and little coverage by the...

We test some of the qualitative properties of mortgage pricing models. The models use option pricing techniques, focusing on prepayment as a call option. They imply a quite nonlinear relationship between mortgage price and coupon, interest rates and volatility. We test for both the first and...

Recent models of pricing mortgages and/or mortgage insurance have used option-pricing models as their framework. The focus is usually on default, which is viewed as a put option (to sell the house to the lender in exchange for the mortgage) and prepayment, which is viewed as a call option (to...

This paper investigates differences in default losses across income groups and neighborhoods, in an effort to see if there are significant differences between default experience on loans to low-income households or low-income neighborhoods and other loans. We find that while defaults and losses...

This paper uses mortgage history data from the Federal Home Loan Mortgage Corporation to analyze the prepayment behavior of homeowners and to test whether borrowers exercise their prepayment options in a manner consistent with contingent claims models. A variety of hazard models are estimated...

This paper tests the contingent claims model of mortgage default in its ruthless or frictionless form. The principal tests of the model are based on an unconventional source of data, namely, loan loss severities on defaulted mortgages. The frictionless model has well-defined predictions about...

It has been widely assumed that there was a bubble in the U.S. housing market after1999.This paper analyzes the extent to which that was true. We define a bubble as: (1) a regime shift that is characterized by a change in the properties of deviations from the fundamentals of house price growth,...