ARM Wrestling: Valuing Adjustable Rate Mortgages Indexed to the Eleventh District Cost of Funds
分析了以第十一区资金成本指数（EDCOFI）为基准的可调利率抵押贷款，发现该指数调整滞后于利率期限结构，并存在一月效应；开发了有限差分定价算法，可内生确定最优提前还款策略，该期权价值约为剩余本金的0.5%。
This article analyzes adjustable rate mortgages (ARMs) based on the Eleventh District Cost of Funds Index (EDCOFI). The behavior of EDCOFI was examined over the period 1981–1993. Adjustments in this index lag substantially behind term structure fluctuations. Also, the seasonality and days‐in‐the‐month effects noted by previous authors are really symptoms of a January effect . A finite difference valuation algorithm was developed which accounts for all usual ARM contractual features, in addition to the dynamics of EDCOFI. This pricing algorithm allows us to determine endogenously the optimal prepayment strategy for mortgage holders, and hence the value of their prepayment options. The dynamics of EDCOFI give significant value to this option, typically around 0.5% of the remaining principal on the loan.