On the Design and Pareto-Optimality of Participating Mortgages

Ebrahim, Muhammed-Shahid

Abstract

This paper develops a micro-economic model and proceeds with numerical simulation to demonstrate that participating mortgages can improve social welfare when the real estate ownership is shared among the different taxable entities. The optimal distribution of real estate ownership and lending will tend to be concentrated in taxable and nontaxable hands, respectively, with lending conducted via participating mortgages. This paper also demonstrates the violation of the well-known, risk-neutral valuation argument of the Black and Scholes (1973) model because of the lack of a riskless hedge due to the uniqueness of real estate.

Citation

Ebrahim, M. (1996). On the Design and Pareto-Optimality of Participating Mortgages. Real Estate Economics, 24(3), 407-419. https://doi.org/10.1111/1540-6229.00697

• Journal Article Type: Article
• Publication Date: 1996-09
• Deposit Date: Sep 25, 2014
• Journal: Real Estate Economics
• Print ISSN: 1080-8620
• Electronic ISSN: 1540-6229
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 24
• Issue: 3
• Pages: 407-419
• DOI: https://doi.org/10.1111/1540-6229.00697
• Public URL: https://durham-repository.worktribe.com/output/1453621