Optimal Put Exercise: An Empirical Examination of Conditions for Mortgage Foreclosure

Brent Ambrose, Charles Capone and Yongheng Deng

The Journal of Real Estate Finance and Economics, 2001, vol. 23, issue 2, 213-34

Abstract: Implicit in option-pricing models of mortgage valuation are threshold levels of put-option value that must be crossed to induce borrower default. There has been little research into what these threshold values are that come out of pricing models or how they compare to exercised option values seen in empirical data. This study decomposes boundary conditions for optimal default exercise to look at the economic dynamics that should lead to optimal default timing. Empirical data on FHA insured mortgage foreclosures is then examined to discern the predictive influence of optimal-option-valuation-and-exercise variables on observed default timing and values. Interesting results include a new understanding of how to measure and use property equity variables during economic downturns, house-price index ranges over which default is exercised for various classes of borrowers, and implied differences in appreciation rates between market-price indices and foreclosed properties. Copyright 2001 by Kluwer Academic Publishers

Date: 2001
References: Add references at CitEc
Citations: View citations in EconPapers (30)

Downloads: (external link)
http://journals.kluweronline.com/issn/0895-5638/contents link to full text (text/html)
Access to full text is restricted to subscribers.

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:kap:jrefec:v:23:y:2001:i:2:p:213-34

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/11146/PS2

Access Statistics for this article

The Journal of Real Estate Finance and Economics is currently edited by Steven R. Grenadier, James B. Kau and C.F. Sirmans

More articles in The Journal of Real Estate Finance and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().