A Lattice Approach to Pricing Fixed‐Rate Mortgages with Default and Prepayment Options

Wai K. Leung and C. F. Sirmans

Real Estate Economics, 1990, vol. 18, issue 1, 91-104

Abstract: Existing models on the pricing of default and prepayment options in fixed‐rate mortgages either use numerical methds or they do not consider refinancing or other transaction costs involved in default and prepayment. We provide in this paper an application of the Boyle [1] lattice model to price secured debt with two risky assets. This model is simple, efficient and capable of considering the major types of transaction costs involved in prepayment and default. Using our model, we estimate the option values under a range of assumptions about the underlying parameters. We also provide some comparisons of the lattice model estimates to other models in the literature.

Date: 1990
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://doi.org/10.1111/1540-6229.00511

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:reesec:v:18:y:1990:i:1:p:91-104

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1080-8620

Access Statistics for this article

Real Estate Economics is currently edited by Crocker Liu, N. Edward Coulson and Walter Torous

More articles in Real Estate Economics from American Real Estate and Urban Economics Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().