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Mortgage Default Risk and Real Estate Prices: The Use of Index-Based Futures and Options in Real Estate
Karl E. Case Wellesley College Robert J. Shiller Yale University - Cowles Foundation; National Bureau of Economic Research (NBER); Yale University - International Center for Finance Allan N. Weiss Case Shiller Weiss Inc. April 1995 NBER Working Paper No. W5078 Abstract: Evidence is shown, using US foreclosure data by state 1975-93, that periods of high default rates on home mortgages strongly tend to follow real estate price declines or interruptions in real estate price increase. The relation between price decline and foreclosure rates is modelled using a distributed lag. Using this model, holders of residential mortgage portfolios could hedge some of the risk of default by taking positions in futures or options markets for residential real estate prices, were such markets to be established.
JEL Classifications: G2 Working Paper SeriesDate posted: July 21, 2000 ; Last revised: April 05, 2008Suggested CitationContact Information
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