As applied to the behavior of homeowners with mortgages, option theory predicts that mortgage prepayment or default will be exercised if the call or put option in "in the money" by some specific amount. Our analysis: tests the extent to which the option approach can explain default and...

Mortgage terminations arise because borrowers exercise options. This paper investigates the apparently irrational behavior of those borrowers who do not terminate their mortgages even when the exercise value of the option is deeply in the money. We develop an option-based empirical model to...

It is widely recognized that options and futures markets for housing can reduce and manage the risks inherent in consumers’ large investments in housing equity. The integrity of such markets depends, however, upon the use of transparent and replicable benchmarks for house prices and...