Household Risk Management and Optimal Mortgage Choice

DSpace/Manakin Repository

Household Risk Management and Optimal Mortgage Choice

Citable link to this page


Title: Household Risk Management and Optimal Mortgage Choice
Author: Campbell, John; Cocco, Joao

Note: Order does not necessarily reflect citation order of authors.

Citation: Campbell, John Y., and Joao F. Cocco. 2003. Household risk management and optimal mortgage choice. Quarterly Journal of Economics 118(4): 1449-1494.
Full Text & Related Files:
Abstract: This paper asks how a household should choose between a fixed-rate (FRM) and an adjustable-rate (ARM) mortgage. In an environment with uncertain inflation a nominal FRM has a risky real capital value, whereas an ARM has a stable real capital value but short-term variability in required real payments. Numerical solution of a life-cycle model with borrowing constraints and income risk shows that an ARM is generally attractive, but less so for a risk-averse household with a large mortgage, risky income, high default cost, or low moving probability. An inflation-indexed FRM can improve substantially on standard nominal mortgages.
Published Version:
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at
Citable link to this page:
Downloads of this work:

Show full Dublin Core record

This item appears in the following Collection(s)


Search DASH

Advanced Search