Mortgage prepayment with an uncertain holding period

A discrete-time-option pricing model is developed to value a mortgage and its embedded prepayment option when the effective life of the mortgage is a random variable with a probability distribution of known parameters. The model can be applied when the borrower's ex ante expectation of his tenure follows any probability distribution bounded to the left at zero. The Gamma distribution is used to illustrate the model.The pricing model is further applied to determine the conditions under which financially motivated prepayment is optimal. The results show that the certainty model understates the Interest Rate Differential needed to justify prepayment (IRD) for short Expected Holding Period (EHP) borrowers and overstates the IRD for long EHP borrowers. When the EHP is relatively long, the certainty model provides relatively good estimates of IRD during the beginning years of the mortgage life. Under most other conditions, the estimates of the certainty holding period model are biased.     

Microfoundations of a mortgage prepayment function

This article focuses on the following question: how much of an interest rate decline is needed to justify refinancing a typical home mortgage? Modern option pricing theory is used to answer the question; this theory indicates that the answer depends upon several factors, which include the volatility of interest rates and the expected holding period of the borrower. The analysis suggests that the commonly espoused “rule of thumb” refinance if the interest rate declines by 200 basis points — is a fair approximation to the more precisely derived differential for many households. We also construct the prepayment behavior of a pool of mortgages in which the expected holding periods of the borrowers in the pool vary. The prepayment behavior of this simulated pool is used to generate a series of empirically testable hypotheses regarding the likely shape of an actual prepayment function and its determinants. Finally, actual prepayment data are used to estimate a hazard function that explains prepayment behavior. We find that the estimated model understates prepayment behavior relative to that predicted by the simulation model, which suggests that the simple option pricing model is not adequate to explain aggregate prepayment behavior.     

Strategic decision models: Integrating different perspectives

Different perspectives of strategic decision-making and outcomes have been advanced in the literature. Among those are the rational normative, external control, and strategic choice models. The current research examined hypothesized effects of factors associated with these three perspectives on strategic acquisition decisions. Strong support was found for the rational/analytical normative choice perspective with objective criteria explaining the greatest amount of total explained variance in evaluation of target firms. However, industry and executive characteristics also produced main effects on target firm evaluations. Furthermore, the strategic decision models were found to vary by industry and executive characteristics of age, educational degree type, amount and type of work experience, and level (CEO and below). The results suggest that strategic decision models are quite complex with significant implications for future research and for strategic decision-making.     

Examining correlations between preparation experiences of US technology and engineering educators and their teaching of science content and practices

The purpose of this research was to investigate the extent of the relationship between select technology and science preparation experiences of United States (US) technology and engineering (T&E) teachers and their teaching of science content and practices. Utilizing a fully integrated mixed methods design (Teddlie and Tashakkori in Res Schools 13(1):12–28, 2006), this study was conducted to inform the pre- and in-service preparation needs for US T&E educators. A random sample of 55 Foundations of Technology (FoT) teachers across 12 US county school systems within an International Technology and Engineering Educators Association consortium state participated in an online survey, leading to eight teachers being purposefully selected for classroom observations. Data collected from the surveys and classroom observations were analyzed through Spearman’s rho tests to examine the strength of the relationships between certain formal/informal preparation factors and the teaching of science content and practices. These data were corroborated with FoT curriculum content analyses, classroom observation audio recordings and notes, and interview responses to help validate the results. Analyses of the data revealed significant correlations between specific formal and informal preparation experiences and the observed teaching of science content and practices. The findings and conclusions drawn from the data analyses provided implications for T&E educators, science educators, educational researchers, pre-service programs, and in-service professional development efforts.     

A monetary valuation of individual religious behaviour: the case of prayer

The majority of the US population is religious. The value of a fundamental religious behaviour, prayer, is determined using the well-being valuation method. Theoretically appropriate Instrumental Variables (IV) are used to avoid bias in estimating the effects of household income and the frequency of prayer on well-being. The marginal value of an additional weekly prayer session for individuals already at the national mean is estimated to be $6550 per annum (2004 dollars). Praying at the frequency of the national mean of 8.1 prayer sessions weekly is valued at $53?055 (2004 dollars) per annum. This is larger than the median household income in the US in 2004: $44?684. This suggests that the perception of communion with God is highly valued by religious individuals.     

Optimal leverage strategy: Capital structure in real estate investments

This article examines the optimal leverage strategy for real estate investors who are investing in income-producing properties. Within a discounted cash-flow context, the investment objective for the equity investor is to maximize the contribution to net present value of using mortgage financing. Utilizing more debt decreases the required equity investment and increases the size of the tax shelter. On the other hand, as the loan-to-value ratio increases, the interest rate charged by the lender increases, which indicates a higher cost of debt. This article goes beyond the simple conventional wisdom that debt financing should be used when financial leverage is positive by developing an equation that allows one to determine the optimal level of debt financing to use when positive leverage is possible. The optimal loan-to-value ratio is found to be a function of the investor's characteristics. Several hypotheses about the relationships between such an optimal loan-to-value ratio and the investor's characteristics are derived.     

The Role of Interested Groups in England's Emerging Tourism Policy Network

The role of interested groups within English tourism policy development has increased considerably in recent years. There are several possible explanations for this, including changing government policy styles, the perception of the importance of tourism to the national economy, and the developing sophistication of a tourism policy network. This paper reviews the role of interested groups and the nature of tourism policy development in England within the context of a theoretical discussion on public policy analysis, policy styles and policy networks. It specifically reports on the relationship between the tourism interest groups and government, and the mechanisms used by them to influence policy development. The paper shows that the tourism policy network can be characterised as immature. It has government at its centre directing strategic policy, with two sub-networks concentrating on the detail of commercial tourism and tourism resource policy. Within these sub-networks are dominant and secondary players defined as such by the manner in which they use their resources, gain access to decision-makers, collaborate with like-minded groups and work with government bureaucracy.     

Inducing private wildfire risk mitigation: Experimental investigation of measures on adjacent public lands

Increasing private wildfire risk mitigation is an important part of the larger forest restoration policy challenge. Data from an economic experiment are used to evaluate the effectiveness of providing fuel reductions on public land adjacent to private land to induce private wildfire risk mitigation. Results show evidence of “crowding out” where public spending can decrease the level of private risk mitigation. Findings also indicate that spending on private mitigation efforts increase when information about individual expenditures are made available and spending on public land fuel reductions are conditional upon a threshold level of private mitigation effort being achieved.