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A Model for Pricing Federal Housing Finance Obligations: Working Paper 2022-06

Congressional Budget Office

No 57844, Working Papers from Congressional Budget Office

Abstract: This paper presents a risk-neutral approach used by the Congressional Budget Office to inform its estimates of the fair-value cost of mortgage obligations. The fair-value cost is the amount that a private entity would charge in a competitive market for taking the risks associated with a government activity. CBO’s approach adjusts the probability distribution of macroeconomic variables to obtain a risk-neutral distribution of default, recovery, and prepayment rates. The macroeconomic variables are calibrated by determining the adjustment that leads the estimates of the fair-

JEL-codes: G21 G28 H81 (search for similar items in EconPapers)
Date: 2022-04-19
New Economics Papers: this item is included in nep-ban, nep-mac and nep-ure
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