Managing the Short‐Term Interest Rate Exposure Inherent in Adjustable Rate Mortgage Loans

Research output: Contribution to journalArticle

1 Scopus citations

Abstract

This paper develops a model for determining the level of, and changes over time in, the short‐term interest rate exposure contained in adjustable rate mortgage loans (ARMs). Results of the study indicate that movements in the underlying adjustment index can create both upward‐movement or downward‐movement interest rate risk for lenders whose ARMs carry rate adjustment limits. The model presented here is useful for designing hedging strategies for ARM loans, and for analyzing the impact of new originations on the interest rate exposure of the ARM portfolio.

Original languageEnglish (US)
Pages (from-to)160-172
Number of pages13
JournalReal Estate Economics
Volume16
Issue number2
DOIs
StatePublished - Jan 1 1988

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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