Mortgage Default Risk and Real Estate Prices: The Use of Index-Based Futures and Options in Real Estate

36 Pages Posted: 21 Jul 2000 Last revised: 5 Apr 2008

See all articles by Karl E. Case

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.

Date Written: April 1995

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.

Suggested Citation

Case, Karl E. and Shiller, Robert J. and Weiss, Allan N., Mortgage Default Risk and Real Estate Prices: The Use of Index-Based Futures and Options in Real Estate (April 1995). NBER Working Paper No. w5078. Available at SSRN: https://ssrn.com/abstract=225856

Karl E. Case (Contact Author)

Wellesley College ( email )

106 Central Street
Wellesley, MA 02181
United States
617-973-3957 (Phone)
617-283-3639 (Fax)

Robert J. Shiller

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/

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)

Allan N. Weiss

Case Shiller Weiss Inc. ( email )

1698 Massachusetts Ave.
Cambridge, MA 02138
United States
617-354-1400 (Phone)
617-498-0959 (Fax)

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