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The Valuation of Mortgage Loan Commitments Using Option Pricing Estimates

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Abstract

This paper values mortgage loan commitments in the context of the option pricing theory developed by Black and Scholes, and Merton. A valuation model is derived and empirical results are presented.

Suggested Citation

  • George W. Kutner & James A. Seifert, 1989. "The Valuation of Mortgage Loan Commitments Using Option Pricing Estimates," Journal of Real Estate Research, American Real Estate Society, vol. 4(2), pages 13-20.
    • Handle: RePEc:jre:issued:v:4:n:2:1989:p:12-20
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    References listed on IDEAS

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    1. V. Vance Roley, 1982. "The Response of Short-Term Interest Rates to Weekly Money Announcements," NBER Working Papers 1001, National Bureau of Economic Research, Inc.
    2. Roley, V Vance, 1983. "The Response of Short-Term Interest Rates to Weekly Money Announcements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(3), pages 344-354, August.
    3. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
    4. Howard L. Roth, 1988. "Volatile mortgage rates - a new fact of life?," Economic Review, Federal Reserve Bank of Kansas City, vol. 73(Mar), pages 16-28.
    5. Dothan, Uri & Williams, Joseph, 1981. "Education as an Option," The Journal of Business, University of Chicago Press, vol. 54(1), pages 117-139, January.
    6. Anjan V. Thakor & Hai Hong & Stuart I. Greenbaum, 2004. "Bank Loan Commitments and Interest Rate Volatility," Finance 0411050, University Library of Munich, Germany.
    7. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    8. Marcus, Alan J & Shaked, Israel, 1984. "The Valuation of FDIC Deposit Insurance Using Option-pricing Estimates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 446-460, November.
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    Cited by:

    1. Renigier-Biłozor Małgorzata & d’Amato Maurizio, 2017. "The Valuation of Hope Value for Real Estate Development," Real Estate Management and Valuation, Sciendo, vol. 25(2), pages 91-101, June.
    2. Drapikovskyi, Oleksandr & Ivanova, Iryna & Renigier-Biłozor, Małgorzata & Źróbek, Sabina, 2020. "How to assess the impact of hope on a change in the use of land on market value?," Land Use Policy, Elsevier, vol. 97(C).
    3. George W. Kutner & James A. Seifert, 1990. "A Note on the Valuation of Mortgage Loan Commitments: Incorporating the Commitment Cost in the Mortgage Rate," Journal of Real Estate Research, American Real Estate Society, vol. 5(2), pages 281-284.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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