on sraffa s standard commodity is its price invariant with respect to changes in income distribution in his 1960 book sraffa suggested using a composite commodity which he called the standard commodity to solve ricardo s search for an invariable measure of value i e a standard capable of isolating the price movements of any other commodity induced by changes in income distribution the absence in sraffa s book of an explicit proof of the invariance property of this standard gave rise to many misunderstandings about its meaning and its role as an invariable measure of value in order to clear up these questions bellino on sraffa s standard commodity cambridge journal of economics vol 28 121 32 2004 has proposed a proper definition of an invariable measure of value showing that sraffa s standard commodity does fulfil the requirements of this definition he claims that the fulfilment of this property but not the constancy of its nominal price qualifies the standard commodity as an invariable measure of value in this paper a proof of the invariance of the price of the standard commodity with respect to changes in income distribution is given and the equivalence of this property with bellino s definition of invariance is shown

beyond the transaction banks and mortgage default of low income homebuyers we evaluate the effects of the lending institution and soft information on mortgage loan performance for low income homebuyers we find that even after controlling for the propensity of a borrower to get a loan from a local bank based on observable characteristics those who receive a loan from a local bank branch are significantly less likely to become delinquent or default than other bank or nonbank borrowers consistent with an unobserved information effect these effects are most pronounced for loans originated to borrowers with marginal credit where soft information may have a stronger effect these findings support previous research on information driven lending and provide additional explanation for observed differences in mortgage loan performance between bank and nonbank lenders

the value of embedded real options evidence from consumer automobile lease contracts under the common assumption of constant interest rates we show that penalties for early termination of a lease are often structured in such a way that the cancellation option embedded in consumer automotive leases has little value furthermore our estimates drawn from a sample of three popular car models over 1990 to 2000 indicate that the stand alone value of the lease end purchase option is on average about 16 of the market value of underlying used vehicles or about 1 462 per contract finally we examine the sensitivity of our option value estimates to model parameters and default risk recent years have witnessed a dramatic growth in the leasing of automobiles for instance overall industry sales data indicate that about a third of the new vehicles and trucks sold in the united states are leased hendel and lizzeri 2002 and miller 1995 and the federal reserve board survey of family finances reports that the use of leased vehicles by individuals nonbusiness consumers has risen from 2 9 to 5 8 over the 1992 to 2001 period azicorbe kennickell and moore 2003 consumer automobile lease contracts for new cars often include two embedded options that are not associated with a typical debt contract the first is a cancellation option that allows the lessee to terminate the lease early the second is a european call option which gives the lessee the right but not the obligation to purchase the leased used vehicle at the scheduled termination of the lease at a predetermined exercise price both of these options are simple examples of real options because the asset underlying these options is a used car that is a real asset however these options constitute a special case of real options since they are embedded in the lease contract which is a financial credit instrument theoretical analyses of lease contracts show that the cancellation option is quite valuable schallheim and mcconnell 1985 with respect to the purchase option hendel and lizzeri 2002 argue that they can play an important role in

availability of mortgage loans in volatile real estate markets abstract this paper presents a default model for mortgages on single family houses implying a higher probability of negative equity and thus default in real estate markets with high price volatility mortgage lenders compensate for the increased default probability in volatile markets by demanding higher downpayments or increased creditworthiness of loan applicants thus making mortgage loans more difficult to obtain an empirical analysis finds greatly varying price volatility in single family real estate markets in a sample of 42 cities consistent with the implications of the model the empirical analysis finds that the fraction of low downpayment loans declines in volatile markets

rational prepayment and the valuation of mortgage backed securities this article presents a new model of mortgage prepayments based on rational decisions by mortgage holders these mortgage bolders face beterogeneous transaction costs which are explicitly modeled the model is estimated using a version of hansen s 1982 generalized method of moments and is sbown to capture many of the empirical features of mortgage prepayment estimation results indicate that mortgage holders act as tbougb tbey face transaction costs tbat far exceed tbe explicit costs usually incurred on refinancing they also wait an average of more than a year before refinancing even when it is optimal to do so the model fits observed prepayment behavior as well as thee recent empirical model of schwartz and torous 1989 implications for pricing mortgage backed securities are discussed

adjustable and fixed rate mortgages as a screening mechanism for default risk abstract this paper studies how borrowers with different levels of default risk would self select between fixed rate mortgages frms and adjustable rate mortgages arms we show that under asymmetric information where the risk type of a borrower is private information to the borrower and not known by the lender the unique equilibrium may be a separating equilibrium in which the high risk low risk borrowers choose arms frm s thus the borrower s mortgage choice will serve as a signal of default risk enabling lenders to screen high risk and low risk borrowers it is possible for the separating equilibrium to yield positive economic profits for lenders in a competitive market it is also possible to have a unique pooling equilibrium where all borrowers choose either frms or arms the model implies that an increase in the proportion of high risks will increase the likelihood of a separating equilibrium where both mortgage types are offered also a uniform downward shift in the expected change in the interest rate or an increase in borrowers current or future incomes make arms more attractive for both types of borrowers

default and prepayment modelling in participating mortgages abstract since the 2008 financial crisis the mortgage market has been renovating its tools and instruments in order to avoid a new crisis one such innovative instrument is the participating mortgage in which the lender gains part of the net operating income and or future appreciation in this paper we establish a financing model for participating mortgages incorporating early termination options such as default and two prepayment clauses defeasance and prepayment penalty later we illustrate a detailed sensitivity analysis of the model the values of early termination options depend on the choice of parameters in the model as well as the term structure of short term rates finally we show that a participation rate of 11 24 results in zero mortgage interest rate using the parameters in our simulation

an optimal design of collateralized mortgage obligation with pac companion structure using dynamic cash reserve abstract this paper presents a model for optimally designing a collateralized mortgage obligation cmo with a planned amortization class pac companion structure using dynamic cash reserve in this structure the mortgage pool s cash flow is allocated by rule to the two bond classes such that pac bondholders receive substantial prepayment protection that protection being provided by the companion bondholders the structure we propose provides greater protection to the pac bondholders than current structures during periods of rising interest rates when this class of bondholders faces greater extension risk we do so by allowing a portion of the cash flow from the collateral to be reserved to meet the pac s scheduled cash flow in subsequent periods the greater protection is provided by the companion bondholders exposure to interest loss to tackle this problem we transform the problem of designing the optimal pac companion structure into a standard stochastic linear programming problem which can be solved efficiently moreover we present an extended model by considering the quality of the companion bond and by relaxing the pac bondholder shortfall constraint based on numerical experiments through monte carlo simulation we show the utility of the proposed model

sraffa labor theories of value and the economics of real wage rate determination the labor theory of value and the question of whether or not a real wage rate versus profit rate trade off exists have been topics debated since the times of ricardo and marx more recently these topics have been investigated using sraffa s standard commodity approach it is argued here that such approaches are basically flawed however it also is shown that there are situations consistent with perfect competition for which negatively sloped real wage rate versus profit or interest rate trade offs do exist thus despite perfect competition genuine bargaining situations may arise between workers and owners of the capitalistic means of production

mortgage default during the u s mortgage crisis this paper asks which theories of mortgage default are quantitatively consistent with observations in the united states during 2002 2010 theoretical models are simulated for the observed time series of aggregate house prices their predictions are then compared to actual default rates on prime fixed rate mortgages an out of sample test discriminates between estimated reduced forms of the two most prominent theories the test reveals that the doubletrigger hypothesis attributing mortgage default to the joint occurrence of negative equity and a life event like unemployment outperforms a frictionless option theoretic default model based on this finding a structural partialequilibrium model with liquidity constraints and idiosyncratic unemployment shocks is presented to provide micro foundations for the double trigger hypothesis in this model borrowers with negative equity are more likely to default when they are unemployed and have low liquid wealth the model explains most of the observed strong rise in mortgage default rates a policy implication of the model is that subsidizing homeowners can mitigate a mortgage crisis at a lower cost than bailing out lenders

a generalized valuation model for fixed rate residential mortgages this paper uses option pricing techniques to rationally price mortgage instruments subject to both default and prepayment risk attention is given to terminations due to purely financial consideration of the mortgage contract itself as well as to personally induced terminations explicit inclusion of default in the mortgage valuation procedure also permits the valuation of insurance against such default qualitatively it is found that default differs significantly in the behavior from either prepayment or nonfinancial termination quantitatively however there is significant substitution between prepayment and default so that the addition of a default feature to the contract has only a modest impact on mortgage values unless there is substantial price volatility in the housing market or a high loan to value ratio copyright 1992 by ohio state university press

an intertemporal general equilibrium model of asset prices this paper develops a continuous time general equilibrium model of a simple but complete economy and uses it to examine the behavior of asset prices in this model asset prices and their stochastic properties are determined endogenously one principal result is a partial differential equation which asset prices must satisfy the solution of this equation gives the equilibrium price of any asset in terms of the underlying real variables in the economy in this paper we develop a general equilibrium asset pricing model for use in applied research an important feature of the model is its integration of real and financial markets among other things the model endogenously determines the stochastic process followed by the equilibrium price of any financial asset and shows how this process depends on the underlying real variables the model is fully consistent with rational expectations and maximizing behavior on the part of all agents our framework is general enough to include many of the fundamental forces affecting asset markets yet it is tractable enough to be specialized easily to produce specific testable results furthermore the model can be extended in a number of straightforward ways consequently it is well suited to a wide variety of applications for example in a companion paper cox ingersoll and ross 7 we use the model to develop a theory of the term structure of interest rates many studies have been concerned with various aspects of asset pricing under uncertainty the most relevant to our work are the important papers on intertemporal asset pricing by merton 19 and lucas 16 working in a continuous time framework merton derives a relationship among the equilibrium expected rates of return on assets he shows that when investment opportunities are changing randomly over time this relationship will include effects which have no analogue in a static one period model lucas considers an economy with homogeneous individuals and a single consumption good which is produced by a number of processes the random output of these processes is exogenously determined and perishable assets are defined as claims to all or a part of the output of a process and the equilibrium determines the asset prices our theory draws on some elements of both of these papers like merton we formulate our model in continuous time and make full use of the analytical tractability that this affords the economic structure of our model is somewhat similar to that of lucas however we include both endogenous production and

the value of risk measuring the service output of u s commercial banks rather than charging direct fees banks often charge implicitly for their services via interest spreads as a result much of bank output has to be estimated indirectly in contrast to current statistical practice dynamic optimizing models of banks argue that compensation for bearing systematic risk is not part of bank output we apply these models and find that between 1997 and 2007 in the u s national accounts on average bank output is overestimated by 21 percent and gdp is overestimated by 0 3 percent moreover compared with current methods our new estimates imply more plausible estimates of the share of capital in income and the return on fixed capital

mortgage terminations heterogeneity and the exercise of mortgage options as applied to the behavior of homeowners with mortgages option theoiy predicts that mortgage prepayment or default will be exercised if the call or put option is in the money by some specific amount our analysis tests the extent to which the option approach can explain default and prepayment behavior evaluates the practical importance of modeling both options simultaneouisly and models the unobserved heterogeneity of borrowers in the home mortgage market the paper presents a uinified model of the competing risks of mortgage termination by prepayment and default considering the two hazards as dependent competing risks that are estimated jointly it also accounts for the unobserved heterogeneity among borrowers and estimates the unobserved heterogeneity simultaneously with the parameters and baseline hazards associated with prepayment and default functions our results show that the option model in its most straightfolward version does a good job of explaininig default and prepayment but it is not enouigh by itself the simultaneity of the options is very important empirically in explaining behavior the results also show that there exists significant heterogeneity among mortgage borrowers ignoring this heterogeneity results in serious errors in estimating the prepayment behavior of homeowners

the inefficiency of refinancing why prepayment penalties are good for risky borrowers abstract this paper provides a theoretical analysis of the efficiency of prepayment penalties in a dynamic competitive lending model with risky borrowers and costly default when considering improvements in the borrower s creditworthiness as one of the reasons for refinancing mortgages we show that refinancing penalties can be welfare improving and that they can be particularly beneficial to riskier borrowers in the form of lower mortgage rates reduced defaults and increased availability of credit thus a high concentration of prepayment penalties among the riskiest borrowers can be an outcome of efficient equilibrium in a mortgage market we also provide empirical evidence that is consistent with the key predictions of our model

stochastic house appreciation and optimal mortgage lending w e characterize the optimal mortgage contract in a continuous time setting with stochastic growth in house price and income costly foreclosure and a risky borrower who requires incentives to repay his debt we show that many features of subprime loans can be consistent with properties of the optimal contract and that when house prices decline mortgage modification can create value for borrowers and lenders our model provides a number of empirical predictions that relate the features of mortgage contracts originated in a housing boom and the extent of their modification in a slump to location and borrowers characteristics jel g20 g21 g33

valuing commercial mortgages an empirical investigation of the contingent claims approach to pricing risky debt this paper empirically investigates a contingent claims model of commercial mortgage pricing we find that the magnitude of the observed default premia for a sample of nonprepayable fixed rate bullet mortgages can be explained by the contingent claims model in addition the model explains a significant proportion of the period to period changes in the default premia however given an assumed negative correlation between building value changes and interest rate changes the model s risk structure tends to increase less steeply with increasing maturity than the observed risk structure since the seminal work of black and scholes 1973 corporate liabilities have been modeled as options on the total value of the firm this contingent claims approach to bond pricing was refined by merton 1974 to allow for cash dispersals prior to the bonds maturities and by brennan and schwartz 1980 and ingersoll 1987 to allow for interest rate uncertainty although variants of these bond pricing models are currently being used extensively on wall street they have not been tested extensively moreover empirical studies have not successfully accounted for the observed spread between the rates on risky and default free debt jones mason and rosenfeld 1984 empirically investigate a model that assumes a nonstochastic term structure of interest rates while ramaswamy and sundaresan 1986 examine a model with stochastic interest rates to price floating rate notes in both cases the models could not explain the observed default premia the relative lack of empirical analysis is due partly to the complicated nature of corporate bonds major corporations generally have a large number of different bond issues outstanding that have different priorities in the event that the firm goes bankrupt moreover the bonds can have a variety of covenants specifying sinking fund provisions conditions under which technical default will occur and other restrictions that can have an impact on their value although these complications do not preclude pricing various bond issues on a case by case basis they make it difficult to test systematically the accuracy of the pricing model

assessing financial stability the capital and loss assessment under stress scenarios class model abstract the class model is a top down capital stress testing framework that uses public data simple econometric models and auxiliary assumptions to project the effect of macroeconomic scenarios on u s banking firms through the lens of the model we find that the total banking system capital shortfall under stressful macroeconomic conditions began to rise 4 years before the financial crisis peaking in the fourth quarter of 2008 the capital gap has since fallen sharply and is now significantly below pre crisis levels in the cross section banking firms estimated to be most sensitive to macroeconomic conditions also have higher capital ratios consistent with a precautionary view of bank capital though this behavior is evident only since the crisis we interpret our results as evidence that the resiliency of the u s banking system has improved since the financial crisis and also as an illustration of the value of stress testing as a macroprudential policy tool

rational prepayments and the valuation of collateralized mortgage obligations absteract this article presents a procedure for evaluating collateralized mortgage obligation cmo tranches the solution procedure is in the spirit of a dynamic programming problem in which an individual mortgagor s decision to prepay is the feedback control variable the mortgagor seeks to minimize the value of the mortgage subject to refinancing costs we employ a two step procedure to solve this dynamic programming problem the first step uses an implicit finite difference backward solution procedure to determine the optimal prepayment boundary for a class of mortgagors each of whom confronts the same proportional refinancing cost this step is repeated for several different classes of mortgagors that differ in the level of refinancing costs that they confront the outcome of this first step is a series of prepayment boundaries one set of boundaries for each level of refinancing costs i e one set of boundaries for each refinancing cost category of mortgagors in the second step the prepayment boundaries determined in the first step are used in conjunction with monte carlo simulation to value the cmo tranches the essence of the second step is that when the simulated interest rate hits the boundary for a particular class it triggers a prepayment scenario for that class of mortgagors we conduct extensive sensitivity analysis to determine the robustness of this approach and our solution procedure to alternative single factor models of the term structure of interest rates and to alternative specifications of the distribution of refinancing cost levels confronted by mortgagors the sensitivity analysis indicates that cmo tranche valuation is not particularly sensitive to alternative models of the term structure so long as the models are consistent with the current yield curve but even when alternative specifications of the refinancing cost categories generate nearly identical values for the collateral underlying the cmo i e the generic mortgage backed securities the resulting tranche values can differ widely between the two specifications the results point out the importance of accurate estimation of the distribution of refinancing costs when the rational valuation model is used for the analysis of cmo tranches

modelling and forecasting mortgage delinquency and foreclosure in the uk in the absence of micro data in the public domain new aggregate models for the uk s mortgage repossessions and arrears are estimated using quarterly data over 1983 2014 motivated by a conceptual double trigger frame framework for foreclosures and payment delinquencies an innovation to improve on the flawed but widespread use of loan to value measures is to estimate difficult to observe variations in loan quality and access to refinancing and shifts in lenders forbearance policy by common latent variables in a system of equations for arrears and repossessions we introduce for the first time in the literature a theory justified estimate of the proportion of mortgages in negative equity as a key driver of aggregate repossessions and arrears this is based on an average debt equity ratio corrected for regional deviations and uses a functional form for the distribution of the debt equity ratio checked on irish micro data from the bank of ireland and bank of england snapshots of negative equity we systematically address serious measurement bias in the months in arrears measures neglected in previous uk studies highly significant effects on aggregate rates of repossessions and arrears are found for the aggregate debt service ratio the proportion of mortgages in negative equity and the unemployment rate economic forecast scenarios to 2020 highlight risks faced by the uk and its mortgage lenders illustrating the usefulness of the approach for bank stress testing for macroeconomics our model traces an important part of the financial accelerator the feedback from the housing market to bad loans and hence banks ability to extend credit

the principal principle i analyze optimal loan modification schemes in a stochastic home price and stochastic interest rate environment lenders maximize loan values by managing the borrower s option to default on the loan and prepayment option given negative equity controlling for the borrower s ability to pay rate reductions and maturity extensions result in a higher probability of redefault by homeowners even after modification of their loans in contrast loan write downs the principal principle not a favored recipe are value maximizing for the lender a shared appreciation mortgage enhances the ability to pay mitigates adverse selection and reduces the present value of expected deadweight foreclosure costs

what motivates a subprime borrower to default this paper uses a real options approach to analyse the exercise of the default option embedded in mortgages in particular it examines a subprime household who borrows at a premium but hopes to refinance at prime rates if their house appreciates we show how these optimal default decisions can be used to calculate probabilities of default an important input for risk management and pricing purposes numerical examples are provided calibrated to us data in a low interest rate environment the credit upgrade potential may discourage subprime borrowers from defaulting however default probabilities are highly sensitive to changes in interest rates and house prices this provides a rational explanation for the prevalence of adjustable rate mortgages among subprime borrowers and the subsequent large numbers of defaults when interest rates rose and house prices declined

energy and economic growth grounding our understanding in physical reality this article attempts to summarise the complex wide ranging and unresolved debate within the economics literature on the possibility of decoupling economic growth from energy use it explores the difference between neo classical and ecological economic worldviews and highlights how the ecological economic approach attempts to ground its analysis within the physical limits implied by the laws of thermodynamics once these laws are accounted for the possibility of decoupling economic growth from energy use seems more limited than neo classical economics implies analysis of empirical evidence also demonstrates that observed improvements in gdp energy use ratios in the usa are better explained by shifts towards higher quality fuels than by improvements in the energy efficiency of technologies this implies a need to focus on decarbonising energy supply furthermore where energy efficiency improvements are attempted they must be considered within the context of a possible rebound effect which implies that net economy wide energy savings from energy efficiency improvements may not be as large as the energy saved directly from the efficiency improvement itself both decarbonising energy supply and improving energy efficiency require the rapid development and deployment of new and existing low carbon technologies this review therefore concludes by briefly outlining areas of economic thought that have emerged as a result of engagement between economists and experts from other disciplines they include ecological evolutionary and institutional economics all of which can make policy relevant contributions to achieving a transition to a low carbon economy

technology adoption subsidies an experiment with managers we evaluate the impact of technology adoption subsidies on investment behavior in an individual choice experiment in a laboratory setting professional managers are confronted with an intertemporal decision problem in which they have to decide whether or not to search for and possibly adopt a new technology technologies differ in the per period benefits they yield and their purchase price increases with the per period benefits provided we introduce a subsidy on the more expensive technologies that also yield larger per period benefits and find that the subsidy scheme induces agents to search for and adopt these more expensive technologies even though the subsidy itself is too small to render these technologies profitable we speculate that the result is driven by the positive connotation affect that the concept subsidy invokes

macroeconomic driven prepayment risk and the valuation of mortgage backed securities we develop a three factor no arbitrage model for valuing mortgage backed securities in which we solve for the implied prepayment function from the cross section of market prices this model closely fits the cross section of mortgage backed security prices without needing to specify an econometric prepayment model we find that implied prepayments are generally higher than actual prepayments providing direct evidence of significant macroeconomic driven prepayment risk premiums in mortgage backed security prices we also find evidence that mortgage backed security prices were significantly affected by fannie mae credit risk and the federal reserve s quantitative easing programs received may 10 2016 editorial decision september 22 2017 by editor stijn van nieuwerburgh

continuous workout mortgages efficient pricing and systemic implications abstract this paper studies the continuous workout mortgage cwm a two in one product a fixed rate home loan coupled with negative equity insurance to advocate its viability in mitigating financial fragility in order to tackle the many issues that cwms embrace we perform a range of tasks we optimally price cwms and take a systemic market based approach stipulating that mortgage values and payments should be linked to housing prices and adjusted downward to prevent negative equity we illustrate that amortizing cwms can be the efficient home financing choice for many households we price cwms as american option style defaulting debt in conjunction with prepayment within a continuous time analytic framework we introduce random prepayments via the intensity approach of jarrow and turnbull 1995 we also model the optimal embedded option to default whose exercise is motivated by decreasing random house prices we adapt the barone adesi and whaley 1987 baw approach to work within amortizing mortgage context we derive new closed form and new analytical approximation methodologies which apply both for pricing cwms as well as for pricing the standard us 30 year fixed rate mortgage frm

sraffa leontief lange the political economy of input output economics abstract the fields of political economy and input output economics are commonly unrelated due to the discrepancy between the qualitative and quantitative analysis in economic science with the aim to overcome this separation this paper relates the basic model of production of commodities by means of commodities to the paradigm of planning as the substitute for the market by sketching the logical historical development of input output economics the model of sraffa the leontief matrices and the political economy of marxist tradition represented by oskar lange are strongly associated so that the typical qualitative concepts of planning law of value and historical development of the capitalist system can be connected to the quantitative framework of matrix programming and mathematical formalization

the contemporary relevance of a cambridge tradition economics as political economy political economy as social theory and ethical theory in this review essay i set out key aspects of nuno martins the cambridge revival of political economy in so doing i also provide some comments on the current state of economics since these provide some context for an appreciation of what martins is trying to achieve martins is focused on making the positive case for classical political economy cpe as a form of theory that is quite different from the modern mainstream for martins that difference is based on its approach to the distribution of a surplus expressed through a social ontology that is based on historical open systems and in which the key aspect of open systems is the institutional and hence deliberative activity by which the surplus is decided which is ultimately an issue for ethics it is through a cambridge tradition focusing on sraffa keynes lawson and sen that cpe a classical social theory and ethical deliberation are brought together bringing them together is an act of synthesis and i conclude by providing a constructive critique of the terms of this synthesis

risk based pricing and the enhancement of mortgage credit availability among underserved and higher credit risk populations this paper estimates an option based hazard model of the competing risks of fha mortgage termination results indicate that the elevated default risks of loans originated among lower credit quality and minority borrowers are more than offset by the damped prepayment speeds of those loans so as to result in markedly lower loan termination probabilities among underserved borrower groups those damped termination risks translate into sizable reductions in risk premia to investors in simulated lower creditquality mortgage pools empirical findings suggest that such pooling and risk based pricing of fha insured mortgages could serve to substantially reduce housing finance costs among underserved borrowers so as to advance both their homeownership opportunities and related federal housing policy objectives

modelling demand for crude oil products in spain this paper develops an econometric model for the five most important crude oil products demand in spain the aim is the estimation of a range of elasticities of such demands that would serve as the basis for an applied general equilibrium model used for forecasting energy demand in a broader framework the main distinctive features of the system with respect to previous literature are i it takes advantage of monthly information coming from very different information sources and ii multivariate unobserved components uc models are implemented allowing for a separate analysis of long and short run relations uc models decompose time series into a number of unobserved though economic meaningful components mainly trend seasonal and irregular a module is added to such structure to take into account the influence of exogenous variables necessary to compute price cross and income elasticities since all models implemented are multivariate in nature the demand components are allowed to interact among them through the system noises similar to a seemingly unrelated equations model the results show unambiguously that the main factor driving demand is real income with prices having little impact on energy consumption

option theory and floating rate securities with a comparison of adjustable and fixed rate mortgages this article demonstrates how to value floating rate securities in particular adjustable rate mortgages in the presence of default the problem is not a straightforward one since endogenous termination default and prepayment necessitates solution by backward procedures but caps on the floating rate then create path dependencies the solution is to introduce an artificial state variable the past contract rate in addition to the natural stochastic variables the interest and the house price process with this technique a numerical investigation of the properties of defaultable adjustable rate mortgages is provided in all cases a comparison is made with standard fixed rate mortgages coauthors are donald c keenan walter j muller iii and james f epperson copyright 1993 by university of chicago press

short and long run effects between oil consumption and economic growth in china this paper examines both the equilibrium relationship and the predictability between oil consumption and economic growth in china time series variables are employed in empirical tests cointegration tests suggest that these two variables tend to move together in the long run in addition granger causality tests indicate that oil consumption could be a useful factor that forecasts changes in the economy in the short run as well as in the long run the oil consumption is found to have great effects on the economy this is because the enormous use of oil in sectors like the industry may have directly pushed the economy however this finding would probably stimulate faster growth in oil consumption and so should be concerned with care conversely economic growth could be used as a predictive factor forecasting oil consumption only in the long run economic growth appears to have small effects on oil use this could be attributed largely to china s energy consumption structure coal constitutes most of the energy consumption and thus the considerable demand for energy resulting from rapid economic growth could be mostly explained by the mass use of coal

subprime mortgage default abstract this paper constructs a reduced form credit risk model of mortgage default the data used is of privately securitized subprime arms adjustable rate mortgages originated between 1997 and 2008 and observed between 2000 and 2009 the period studied thus encompasses the beginning of the subprime crisis given the estimated model contractual properties of the loans are then used to infer the market price of default risk for the various quarters of origination it is empirically determined that a change in the inherent nature of borrowers led to a deterioration in their default performance a change which can be first detected in late 2004 on the other hand the evidence also indicates that the secondary mortgage market became aware of this change at about this same time the large rise in defaults in 2007 cannot therefore be attributed to any surprise other than the unexpectedly large fall in housing prices

risk based capital requirements for mortgage loans abstract we contribute to the debate over the reform of the basel accord by developing risk based capital requirements for mortgage loans held in portfolio by financial intermediaries our approach employs simulation of both economic variables that affect default incidence and conditional loss probability distributions results indicate that appropriate capital charges for credit risk vary substantially with loan characteristics and portfolio geographic diversification hence rules that offer little risk differentiation including the current basel i regime and standardized approach proposed in basel ii result in significant divergence between regulatory and economic capital these results highlight the incentive problems inherent in simplified methods of capital regulation

on sraffa s standard commodity the necessity of expressing the relative price of a commodity in terms of another commodity makes it impossible to distinguish that part of any change that can be ascribed to the characteristics of the commodity itself from the part of that change that is to be ascribed to the characteristics of the commodity of reference i e the numeraire ricardo 1817 was the first to point out this problem and the need to find an invariable measure of value but he was not able to solve the problem in 1960 sraffa suggested using a bundle of commodities that he called standard commodity to accomplish this function claiming that it was a standard of value invariant with respect to changes in the distribution of income but in sraffa s book there is no explicit proof of this claim this gave rise to many misunderstandings about the standard commodity and its role as invariable measure of value this paper proposes a proper definition of an invariable measure of value and then proves that the sraffa standard commodity does fulfil the requirements of this definition copyright 2004 oxford university press

commercial loan borrower s optimal borrowing and prepayment decisions under uncertainty we model a firm which faces continuing stochastic money needs and fluctuating interest rates the borrower minimizes the expected present value of the sum of interest payments and prepayment penalty costs subject to a liquidity constraint since contingent opportunities are absent from the model we find i the firm should not inventory cash ii the firm should prepay the maximum amount possible if it prepays at all

deleveraging and mortgage curtailment abstract using monthly loan level data individual partial prepayments curtailments from january 2001 to june 2011 are observed for mortgages in twenty metropolitan statistical areas contrary to some earlier assertions american homeowners now frequently commit funds towards their mortgage payments in excess of the amount due over 30 of loans outstanding have made at least one curtailment payment after controlling for borrower and loan level variables we show that the latent propensity to curtail has steadily risen from 2003 to 2006 and remains at elevated levels therefore curtailment provides an example of consumer deleveraging behavior that began prior to the great recession

reducing the impact of real estate foreclosures with amortizing participation mortgages we employ amortizing participation mortgage apm to offer a novel ex post renegotiation method of a foreclosure apm belongs to the family of home loan credit facilities advocated in the dodd frank wall street reform and consumer protection act 2010 in our framework apms reduce the endemic agency costs of debt by improving affordability these benefits increase the demand for real estate in bust times and reduce fragility of the financial system thereby preventing foreclosures we evaluate apms in a stochastic control framework and provide solutions for an optimal amortization schedule we generalize our approach to partially amortizing and commercial mortgages which encompass balloon payments finally we provide concrete numerical examples of home loan modifications we also offer detailed sensitivity analysis to market parameters such as house price volatility and interest rates

burmeister on sraffa and the labor theory of value a comment in a recent contribution to this journal burmeister 1984 formulated several objections to sraffa s concept of the standard commodity and concluded that it is basically flawed similar criticism has been put forward by burmeister on several other occasions cf burmeister 1975 1980a 1980b according to burmeister sraffa aimed at the invention of a different labor theory of value 1984 p 509 by constructing a new wage measure such that the linearity of the relationship between the rate of profit and the wage rate remains valid even when there is not equal organic composition of capital by this token all the marxian analysis that is based on the linearity can proceed free of the objectionable equal organic composition of capital assumption p 514 in this comment burmeister s interpretation and criticism of the standard commodity and his view of the relationship between it and the labor theory of value are scrutinized and it is shown that many of his claims are untenable the structure of the paper is as follows section ii prepares the ground for the subsequent discussion by explaining the labor theory of value the role of the standard of value in

mortgage default and possession under recourse a competing hazards approach recent studies by ambrose buttimer and capone have stressed the fact that lender and borrower decisions after the initial default on amortgage may significantly affect the amount and timing of recoveries and hence more broadly the value and riskiness of mortgage loan portfolios this study uses microeconomic data from the uk to examine the timing decisions of mortgage lenders and borrowers when mortgages are in default the results suggest that salary and interest rates influence timing decisions more than loan to value ratios do and that lenders and borrowers accelerate the resolution of delinquent mortgages as the economic climate deteriorates