Why do rulers play by the rules? We show that the legality requirement under the rule of law implements an endogenous enforcement mechanism supporting constitutionality. Agents which do not obey unconstitutional legal norms are not sanctioned under constitutional rule. A principal who defects...

This article introduces catastrophic events into an option pricing model of mortgage insurance by incorporating a Poisson distribution into the building process, thus modifying the usual lognormal form to a new jump-diffusion form. The catastrophic events can be purely financial or may be...

In this paper, we move closer to the interest of empirical research by providing the entire distribution of default's severity not just a summary total. The total price of a mortgage's default option already provides a rough summary statistics of the unconditional expected severity of default,...

The option model in this paper derives not only the value of an insurance policy, but also more disagregated information concerning those precise circumstances under which defaults occurs, and hence, insurance payouts need be made. In other words, this paper demonstrates the option pricing...

In this paper, we deduce the default and prepayment characteristics of mortgages by examining the actual behaviors of a large set of conforming fixed rate mortgages tracked over time. Employing reduced form pricing techniques, we are then able to fully value such mortgages, and so determine the...

This paper uses a structural credit risk model, providing an analytical formula to estimate default probabilities implicit in commercial mortgage backed security prices. Empirical studies on CMBS default have focused on the probability of default depending on loan characteristics at the...

This paper develops a model to rationally price fixed rate mortgages, using the arbitrage principles of option pricing theory. The paper incorporates amortization, prepayment and default in valuing the mortgage. Having completely specified the model, numerical procedures value the different...