Duration and the Price Behavior of Fixed-Rate Level Payment Mortgages: An Analytical Investigation

Paul J Haensly, Thomas M Springer and Neil G Waller

The Journal of Real Estate Finance and Economics, 1993, vol. 6, issue 2, 157-66

Abstract: In this research we use a continuous payment formula for duration to examine the price behavior of a fixed-rate level of payment mortgage. In the case where the mortgage is held to maturity, duration increases monotonically as term-to-maturity increases, regardless of changes in the market rate of interest. In the case where the mortgage is prepaid prior to maturity, there exists a unique market interest rate below which duration is a monotonically increasing function of time of prepayment, but above which duration has a global maximum at some time of prepayment prior to the term-to-maturity. Copyright 1993 by Kluwer Academic Publishers

Date: 1993
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