Optimal Mortgage Refinancing: A Closed Form Solution

DSpace/Manakin Repository

Optimal Mortgage Refinancing: A Closed Form Solution

Show simple item record

dc.contributor.author Agarwal, Sumit
dc.contributor.author Driscoll, John D.
dc.contributor.author Laibson, David I.
dc.date.accessioned 2012-11-16T16:07:02Z
dc.date.issued 2012
dc.identifier.citation Agarwal, Sumit, John D. Driscoll, and David I. Laibson. Forthcoming. Optimal mortgage refinancing: a closed form solution. Journal of Money, Credit, and Banking. en_US
dc.identifier.issn 0022-2879 en_US
dc.identifier.uri http://nrs.harvard.edu/urn-3:HUL.InstRepos:9918811
dc.description.abstract We derive the first closed-form optimal refinancing rule: Refinance when the current mortgage interest rate falls below the original rate by at least \(\frac{1}{ψ}\)[φ + W (− exp (−φ))]. In this formula W(.) is the Lambert W-function, ψ = \(\frac{2 (ρ + λ)}{σ}\), φ = 1 + ψ (ρ + λ)\(\frac{κ/M}{(1 − τ )}\), ρ is the real discount rate, λ is the expected real rate of exogenous mortgage repayment, σ is the standard deviation of the mortgage rate, κ/M is the ratio of the tax-adjusted refinancing cost and the remaining mortgage value, and τ is the marginal tax rate. This expression is derived by solving a tractable class of refinancing problems. Our quantitative results closely match those reported by researchers using numerical methods. en_US
dc.description.sponsorship Economics en_US
dc.language.iso en_US en_US
dc.publisher The Ohio State University en_US
dash.license OAP
dc.subject mortgage en_US
dc.subject refinance en_US
dc.subject option value en_US
dc.subject normative economics en_US
dc.title Optimal Mortgage Refinancing: A Closed Form Solution en_US
dc.type Journal Article en_US
dc.description.version Accepted Manuscript en_US
dc.relation.journal Journal of Money, Credit, and Banking en_US
dash.depositing.author Laibson, David I.
dc.date.available 2012-11-16T16:07:02Z

Files in this item

Files Size Format View
Optimal Mortgage Refinancing 092012.pdf 348.6Kb PDF View/Open

This item appears in the following Collection(s)

  • FAS Scholarly Articles [7495]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University

Show simple item record

 
 

Search DASH


Advanced Search
 
 

Submitters