Abstract
This paper extends the traditional hazard technique of estimating prepayment and default by allowing their baselines to be stochastic processes, rather than known paths of time, as is typically assumed. By working in the reduced form, this method offers an alternative to the empirical valuation of mortgages more easily implemented than the standard structural form approach of options pricing.
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Kau, J.B., Keenan, D.C. & Smurov, A.A. Reduced Form Mortgage Pricing as an Alternative to Option-Pricing Models. J Real Estate Finan Econ 33, 183–196 (2006). https://doi.org/10.1007/s11146-006-9981-7
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DOI: https://doi.org/10.1007/s11146-006-9981-7