The causal effect of mortgage refinancing on interest rate volatility: Empirical evidence and theoretical implications

• 成果类型: Article
• 署名作者: Duarte, Jefferson
• 署名单位: University of Washington; University of Washington Seattle
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhm062
• 发表日期: 2008
• 页码: 1689
• 关键词: term structure models; BACKED SECURITIES; implied volatility; PREPAYMENT; valuation; MARKET; regression; price; RISK; caps

摘要

This article investigates the effects of mortgage-backed security (MBS) hedging activity on interest rate volatility and proposes a model that takes these effects into account. An empirical examination suggests that the inclusion of information about MBSs considerably improves model performance in pricing interest rate options and in forecasting future interest rate volatility. The empirical results are consistent with the hypothesis that MBS hedging affects the interest rate volatility implied by both options and the actual interest rate volatility. The results also indicate that the inclusion of information about the MBS universe may result in models that better describe the price of fixed-income securities.