VALUING AGRICULTURAL MORTGAGE-BACKED SECURITIES

A model to value Federal Agricultural Mortgage Corporation (Farmer Mac) agricultural mortgage-backed securities (AMBS) is developed and numerically solved. The results suggest prepayment penalties currently being used by Farmer Mac reduce yields on AMBS considerably. Even with prepayment penalties, it can be advantageous for profit maximizing mortgagors to optimally prepay or even default on agricultural mortgages. The model is used to quantify prepayment and default risk by valuing the embedded options in the mortgages. Monte Carlo simulation is also used to determine the probability to optimal prepayment given the term structure assumption used to develop the model.


Issue Date:
2001-12
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/15459
Published in:
Journal of Agricultural and Applied Economics, Volume 33, Number 3
Page range:
493-511
Total Pages:
19
JEL Codes:
G13; G21




 Record created 2017-04-01, last modified 2017-08-22

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