lecture18

lecture18 -...

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Open Yale Courses ECON 251: Financial Theory Lecture 18 - Modeling Mortgage Prepayments and Valuing Mortgages << previous session | next session >> Overview: A mortgage involves making a promise, backing it with collateral, and defining a way to dissolve the promise at prearranged terms in case you want to end it by prepaying. The option to prepay, the refinancing option, makes the mortgage much more complicated than a coupon bond, and therefore something that a hedge fund could make money trading. In this lecture we discuss how to build and calibrate a model to forecast prepayments in order to value mortgages. Old fashioned economists still make non-contingent forecasts, like the recent predictions that unemployment would peak at 8%. A model makes contingent forecasts. The old
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This note was uploaded on 02/08/2012 for the course ECON 251 taught by Professor Geanakoplos,john during the Fall '09 term at Yale.

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