References (28)


Citations (1)



Continuous Workout Mortgages

Robert J. Shiller

Yale University - Cowles Foundation; National Bureau of Economic Research (NBER); Yale University - International Center for Finance

Rafal M. Wojakowski

University of Surrey; Lancaster University - Management School

Muhammed Shahid Ebrahim

Durham Business School

Mark B. Shackleton

Lancaster University - Department of Accounting and Finance

April 20, 2011

This paper models Continuous Workout Mortgages (CWMs) in an economic environment with refinancings and prepayments by employing a market-observable variable such as the house price index of the pertaining locality. Our main results include: (a) explicit modelling of repayment and interest-only CWMs; (b) closed form formulae 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 guidance on how to enhance the resilience of the financial architecture and mitigate systemic risk.

Number of Pages in PDF File: 41

Keywords: Continuous Workout Mortgage (CWM), Repayment, Interest-only, House price index, Prepayment intensity, Cap and floor on continuous flow

JEL Classification: C63, D11, D14, D92, G13, G21, R31

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Date posted: April 27, 2011  

Suggested Citation

Shiller, Robert J. and Wojakowski, Rafal M. and Ebrahim, Muhammed Shahid and Shackleton, Mark B., Continuous Workout Mortgages (April 20, 2011). Available at SSRN: http://ssrn.com/abstract=1822169 or http://dx.doi.org/10.2139/ssrn.1822169

Contact Information

Robert J. Shiller (Contact Author)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
203-432-3708 (Phone)
Yale University - International Center for Finance ( email )
Box 208200
New Haven, CT 06520
United States
203-432-3708 (Phone)
203-432-6167 (Fax)

Yale University - Cowles Foundation ( email )
Box 208281
New Haven, CT 06520-8281
United States
203-432-3708 (Phone)
203-432-6167 (Fax)
HOME PAGE: http://www.econ.yale.edu/~shiller/

Rafal M. Wojakowski
University of Surrey ( email )
Faculty of Business, Economics and Law
The Surrey Business School
Guildford, Surrey GU2 7XH
United Kingdom
+44 1483 683477 (Phone)
HOME PAGE: http://www.surrey.ac.uk/sbs/people/rafal_wojakowski/index.htm
Lancaster University - Management School ( email )
Lancaster, LA1 4YX
United Kingdom
+44 (1524) 593630 (Phone)
(01524) 847321 (Fax)
HOME PAGE: http://www.lums.lancs.ac.uk/profiles/rafal-wojakowski/
Muhammed Shahid Ebrahim
Durham Business School ( email )
Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

Mark B. Shackleton
Lancaster University - Department of Accounting and Finance ( email )
The Management School
Lancaster LA1 4YX
United Kingdom
44 1524 594131 (Phone)
44 1524 847321 (Fax)
Feedback to SSRN

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Downloads: 65
Download Rank: 174,246
References:  28
Citations:  1

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