Pricing Adjustable Rate Mortgages
NBER Working Paper No. 1548 (Also Reprint No. r0654)
This paper provides a framework for pricing adjustable rate mortgages and summarizes some evidence on the prices (additions to the coupon rate) necessary to cover expected losses from binding of varios interest rate caps and from mortgage default and foreclosure. Both interst rate and default risk are shown to be heavily inluenced by the form of the mortgage instrument as well as the underlying drift and uncertainty in interest rates and house prices.
Published: Hendershott, Patric H "Pricing Adjustable-Rate Mortgages." Solving the Menu Problem, Proceedings of the Tenth Annual Conference, pp. 99-119. San Francisco: Federal Home Loan Bank of San Francisco1985.
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