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Mitigating financial fragility with Continuous Workout Mortgages

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Mitigating financial fragility with Continuous Workout Mortgages. / Shiller, Robert J. ; Wojakowski, Rafal; Ebrahim, Shahid; Shackleton, Mark.

In: Journal of Economic Behavior and Organization, Vol. 85, 01.2013, p. 269-285.

Research output: Contribution to journalJournal articlepeer-review

Harvard

Shiller, RJ, Wojakowski, R, Ebrahim, S & Shackleton, M 2013, 'Mitigating financial fragility with Continuous Workout Mortgages', Journal of Economic Behavior and Organization, vol. 85, pp. 269-285. https://doi.org/10.1016/j.jebo.2012.04.010

APA

Shiller, R. J., Wojakowski, R., Ebrahim, S., & Shackleton, M. (2013). Mitigating financial fragility with Continuous Workout Mortgages. Journal of Economic Behavior and Organization, 85, 269-285. https://doi.org/10.1016/j.jebo.2012.04.010

Vancouver

Shiller RJ, Wojakowski R, Ebrahim S, Shackleton M. Mitigating financial fragility with Continuous Workout Mortgages. Journal of Economic Behavior and Organization. 2013 Jan;85:269-285. https://doi.org/10.1016/j.jebo.2012.04.010

Author

Shiller, Robert J. ; Wojakowski, Rafal ; Ebrahim, Shahid ; Shackleton, Mark. / Mitigating financial fragility with Continuous Workout Mortgages. In: Journal of Economic Behavior and Organization. 2013 ; Vol. 85. pp. 269-285.

Bibtex

@article{7f6d68fd5f0446ec9cfde2ad2188b49a,
title = "Mitigating financial fragility with Continuous Workout Mortgages",
abstract = "This paper models Continuous Workout Mortgages (CWMs) in an economic environment with refinancings and prepayments. CWMs are home loans whose balance and payments are indexed using a market-observable house price index of the pertaining locality. Our main results include: (a) explicit modelling of repayment and interest-only CWMs; (b) closed form formul{\ae} for mortgage payment and mortgage balance of a repayment CWM; (c) a closed form formula for the actuarially fair mortgage rate of an interest-only CWM. For repayment CWMs we extend our analysis to include two negotiable parameters: adjustable {"}workout proportion{"} and adjustable {"}workout threshold.{"} These results are of importance as they not only help in the understanding of the mechanics of CWMs and estimating key contract parameters, but they also provide insight on how to enhance the resilience of the financial architecture and mitigate systemic risk.",
keywords = "Continuous Workout Mortgage (CWM), Repayment , House price index , Prepayment intensity , Cap and floor on continuous flow",
author = "Shiller, {Robert J.} and Rafal Wojakowski and Shahid Ebrahim and Mark Shackleton",
note = "The final, definitive version of this article has been published in the Journal, Journal of Economic Behavior and Organization 85, 2013, {\textcopyright} ELSEVIER.",
year = "2013",
month = jan,
doi = "10.1016/j.jebo.2012.04.010",
language = "English",
volume = "85",
pages = "269--285",
journal = "Journal of Economic Behavior and Organization",
issn = "0167-2681",
publisher = "Elsevier",

}

RIS

TY - JOUR

T1 - Mitigating financial fragility with Continuous Workout Mortgages

AU - Shiller, Robert J.

AU - Wojakowski, Rafal

AU - Ebrahim, Shahid

AU - Shackleton, Mark

N1 - The final, definitive version of this article has been published in the Journal, Journal of Economic Behavior and Organization 85, 2013, © ELSEVIER.

PY - 2013/1

Y1 - 2013/1

N2 - This paper models Continuous Workout Mortgages (CWMs) in an economic environment with refinancings and prepayments. CWMs are home loans whose balance and payments are indexed using a market-observable house price index of the pertaining locality. Our main results include: (a) explicit modelling of repayment and interest-only CWMs; (b) closed form formulæ for mortgage payment and mortgage balance of a repayment CWM; (c) a closed form formula for the actuarially fair mortgage rate of an interest-only CWM. For repayment CWMs we extend our analysis to include two negotiable parameters: adjustable "workout proportion" and adjustable "workout threshold." These results are of importance as they not only help in the understanding of the mechanics of CWMs and estimating key contract parameters, but they also provide insight on how to enhance the resilience of the financial architecture and mitigate systemic risk.

AB - This paper models Continuous Workout Mortgages (CWMs) in an economic environment with refinancings and prepayments. CWMs are home loans whose balance and payments are indexed using a market-observable house price index of the pertaining locality. Our main results include: (a) explicit modelling of repayment and interest-only CWMs; (b) closed form formulæ for mortgage payment and mortgage balance of a repayment CWM; (c) a closed form formula for the actuarially fair mortgage rate of an interest-only CWM. For repayment CWMs we extend our analysis to include two negotiable parameters: adjustable "workout proportion" and adjustable "workout threshold." These results are of importance as they not only help in the understanding of the mechanics of CWMs and estimating key contract parameters, but they also provide insight on how to enhance the resilience of the financial architecture and mitigate systemic risk.

KW - Continuous Workout Mortgage (CWM)

KW - Repayment

KW - House price index

KW - Prepayment intensity

KW - Cap and floor on continuous flow

U2 - 10.1016/j.jebo.2012.04.010

DO - 10.1016/j.jebo.2012.04.010

M3 - Journal article

VL - 85

SP - 269

EP - 285

JO - Journal of Economic Behavior and Organization

JF - Journal of Economic Behavior and Organization

SN - 0167-2681

ER -