Abstract

http://ssrn.com/abstract=891034
 
 

References (50)



 
 

Citations (12)



 


 



Household Interest Rate Risk Management


Otto Van Hemert


New York University (NYU) - Department of Finance

February 1, 2009

AFA 2007 Chicago Meetings Paper
EFA 2006 Zurich Meetings

Abstract:     
I investigate household interest rate risk management by solving a life-cycle asset allocation model that includes mortgage and bond portfolio choice. I find that most investors prefer an adjustable-rate mortgage, and thereby save on the bond risk premium that is contained in fixed-rate mortgage payments. Only older, risk-averse investors hold some fixed-rate mortgage debt. Together with a position in short-term bonds this enables them to hedge against changes in the real interest rate, while the inflation exposure of the debt and bond positions cancel out. Hedging house price changes with bonds only occurs at the end of the life cycle. Early in the life cycle short-sale constraints prevent an effective hedge.

Number of Pages in PDF File: 55

Keywords: portfolio choice, mortgage, housing, term structure of interest rates

JEL Classification: G11, E43

working papers series


Download This Paper

Date posted: March 15, 2006 ; Last revised: February 23, 2009

Suggested Citation

Van Hemert, Otto, Household Interest Rate Risk Management (February 1, 2009). AFA 2007 Chicago Meetings Paper; EFA 2006 Zurich Meetings. Available at SSRN: http://ssrn.com/abstract=891034 or http://dx.doi.org/10.2139/ssrn.891034

Contact Information

Otto Van Hemert (Contact Author)
New York University (NYU) - Department of Finance ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
Feedback to SSRN


Paper statistics
Abstract Views: 2,370
Downloads: 609
Download Rank: 23,286
References:  50
Citations:  12

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.359 seconds