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Waiting to Default: The Value of Delay (1994)

Kau, James B. ; Kim, Taewon

Oxford, UK : Blackwell Publishing Ltd

Real estate economics 22 (1994), S. 0

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ISSN: 1540-6229

Source: Blackwell Publishing Journal Backfiles 1879-2005

Topics: Economics

Notes: This paper analyzes the opportunity for early termination of a mortgage contract. We consider the possibility of defaulting on the property and explore the rules that are used by a value-maximizing borrower in exercising this option to default. The discussion centers on the value of waiting to make such a decision and the consequences of this rational inertia. We show that the observed delay in default usually attributed to transaction costs can instead be explained as entirely rational choice in a dynamic environment.

Type of Medium: Electronic Resource

URL: http://dx.doi.org/10.1111/1540-6229.00648

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