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Adjustable Rate Mortgages: Valuation

Berk, Jonathan and Roll, Richard (1988) Adjustable Rate Mortgages: Valuation. Journal of Real Estate Finance and Economics, 1 (2). pp. 163-184. ISSN 0895-5638. doi:10.1007/bf00152571.

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A simulation method is employed to value Adustable Rate Mortgages, (ARMS). It is used to price two typical instruments: an ARM linked to a Treasury interest rate and an ARM linked to a “Cost of Funds” Index. Contractual provisions such as the margin over the index, caps and floors on the ARM's rate or on the monthly prepayment, reset frequency, and the “teaser” rate are examined for their influence on value. The effects of interest rate trend and volatility are also analysed.

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Additional Information:© Kluwer Academic Publishers 1988. This paper was written when both authors were employees of Goldman, Sachs & Co. in New York. The material in this paper is for private information, and Goldman, Sachs & co. is not soliciting any action based on it. Opinions expressed are the authors present opinions only. The material is based upon information which Goldman, Sachs & Co. considers reliable; but it does not represent that the material is accurate or complete, and it should not be relied upon as such. Goldman, Sachs & Co. may from time to time have a long or short position in, and buy or sell, securities mentioned.
Subject Keywords:Interest Rate; Simulation Method; Adjustable Rate; Contractual Provision; Rate Mortgage
Issue or Number:2
Record Number:CaltechAUTHORS:20190426-145911014
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Official Citation:Berk, J. & Roll, R. J Real Estate Finan Econ (1988) 1: 163.
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:95046
Deposited By: George Porter
Deposited On:26 Apr 2019 22:28
Last Modified:16 Nov 2021 17:09

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