Prepayment Risk in Adjustable Rate Mortgages: Some New Evidence
OLIN Working Paper No. 99-03
Posted: 11 Jul 2000
Date Written: December 14, 1999
This paper empirically examines several open questions regarding prepayment risk in adjustable rate mortgages (ARMs), using loan-level data. Results support the teaser rate and adjustment date effects implied by the theoretical option pricing model of Kau, Keenan, Epperson and Muller (1993). In addition, we find that deeply teased ARMs do have greater prepayment risk, contrary to the results of Green and Shilling (1997).
JEL Classification: G21
Suggested Citation: Suggested Citation