Please use this identifier to cite or link to this item:
|Title:||Optimal Mortgage Refinancing: A Closed-Form Solution|
|Authors:||Agarwal, S. |
|Citation:||Agarwal, S., Driscoll, J.C., Laibson, D.I. (2013-06). Optimal Mortgage Refinancing: A Closed-Form Solution. Journal of Money, Credit and Banking 45 (4) : 591-622. ScholarBank@NUS Repository. https://doi.org/10.1111/jmcb.12017|
|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 1ψ[φ+W-exp-φ].In this formula W(.) is (the principal branch of) the Lambert W-function, ψ=2ρ+λσ, φ=1+ψρ+λκ/M(1-τ),where 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. © 2013 The Ohio State University.|
|Source Title:||Journal of Money, Credit and Banking|
|Appears in Collections:||Staff Publications|
Show full item record
Files in This Item:
There are no files associated with this item.
checked on Oct 16, 2018
WEB OF SCIENCETM
checked on Oct 8, 2018
checked on Jul 6, 2018
Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.