Prepayment Risk in Adjustable Rate Mortgages: Some New Evidence

OLIN Working Paper No. 99-03

Posted: 11 Jul 2000  

Michael LaCour-Little

California State University at Fullerton

Brent W. Ambrose

Pennsylvania State University

Date Written: December 14, 1999

Abstract

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

LaCour-Little, Michael and Ambrose, Brent W., Prepayment Risk in Adjustable Rate Mortgages: Some New Evidence (December 14, 1999). OLIN Working Paper No. 99-03. Available at SSRN: https://ssrn.com/abstract=231518

Michael LaCour-Little (Contact Author)

California State University at Fullerton ( email )

5133 Mihaylo Hall
Fullerton, CA 92834-6848
United States
657-278-4014 (Phone)
657-278-2161 (Fax)

Brent W. Ambrose

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

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