Optimal mortgage contracts with time-inconsistent preferences
Abstract
This paper integrates a time-inconsistent preference into the mortgage design problem and studies the corresponding effects on the optimal contract. By assuming exogenous time inconsistency in borrower's preference, we find that the time-inconsistent preference increases the loss in the lender's value and the compensation boundary. We implement the optimal contract using standard securities and option adjustable-rate mortgages (ARMs). The...
Paper Details
Title
Optimal mortgage contracts with time-inconsistent preferences
Published Date
Jul 31, 2019
Volume
25
Issue
18
Pages
1834 - 1855
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