Optimal design of securitization in a principal-agent relationship based on Bayesian inference for moral hazard
In the securitization process, by selling the mortgage loans to risk-lover investors, originator can allocate the mortgage loans risk to them. In this case, originator may not have an incentive to screen out borrowers, resulting in the moral hazard problem. This paper, within a principal-agent frame...
Main Authors: | , , |
---|---|
Format: | Article |
Language: | fas |
Published: |
University of Tehran
2015-03-01
|
Series: | تحقیقات مالی |
Subjects: | |
Online Access: | https://jfr.ut.ac.ir/article_50708_d74f10f8eb9b81e5c7b0c1ffc555a436.pdf |
id |
doaj-7a80539589b94a7cb3f5982028bdee78 |
---|---|
record_format |
Article |
spelling |
doaj-7a80539589b94a7cb3f5982028bdee782020-11-25T00:34:35ZfasUniversity of Tehranتحقیقات مالی1024-81532423-53772015-03-0117112314010.22059/jfr.2015.5070850708Optimal design of securitization in a principal-agent relationship based on Bayesian inference for moral hazardEzatollah Abbasian0Mohsen Ebrahimi1Elham Farzanegan2Associate Prof., Faculty of Economic and Social Sciences, Bu Ali Sina University, Hamada, IranAssociate Prof., Faculty of Economic and Social Sciences, Bu Ali Sina University, Hamada, IranPh.D. Candidate in Economics, Faculty of Economic and Social Sciences, Bu Ali Sina University, Hamada, IranIn the securitization process, by selling the mortgage loans to risk-lover investors, originator can allocate the mortgage loans risk to them. In this case, originator may not have an incentive to screen out borrowers, resulting in the moral hazard problem. This paper, within a principal-agent framework, analyzes this agency problem. Investor, to reduce asymmetric information, uses compensation scheme for giving incentives to the originator and by using the Bayesʼ rule, deals with inferring various dimensions of undertaken effort, and incorporates her joint posterior beliefs of the pooled loans’ credit position data and inferred various dimensions of effort into the designing contract problem. The results indicate that the shape of optimal contract is a function of the information content of investors’ observations and inferred knowledge about efforts, suggesting that using additional information prevents originator’s opportunism, the originator more likely performs the obligated tasks when lending the loans to the applicants.https://jfr.ut.ac.ir/article_50708_d74f10f8eb9b81e5c7b0c1ffc555a436.pdfibp stochastic processmoral hazardmortgage-backed securitiesnonparametric bayesian inferenceoptimal design of multi-task compensation scheme |
collection |
DOAJ |
language |
fas |
format |
Article |
sources |
DOAJ |
author |
Ezatollah Abbasian Mohsen Ebrahimi Elham Farzanegan |
spellingShingle |
Ezatollah Abbasian Mohsen Ebrahimi Elham Farzanegan Optimal design of securitization in a principal-agent relationship based on Bayesian inference for moral hazard تحقیقات مالی ibp stochastic process moral hazard mortgage-backed securities nonparametric bayesian inference optimal design of multi-task compensation scheme |
author_facet |
Ezatollah Abbasian Mohsen Ebrahimi Elham Farzanegan |
author_sort |
Ezatollah Abbasian |
title |
Optimal design of securitization in a principal-agent relationship based on Bayesian inference for moral hazard |
title_short |
Optimal design of securitization in a principal-agent relationship based on Bayesian inference for moral hazard |
title_full |
Optimal design of securitization in a principal-agent relationship based on Bayesian inference for moral hazard |
title_fullStr |
Optimal design of securitization in a principal-agent relationship based on Bayesian inference for moral hazard |
title_full_unstemmed |
Optimal design of securitization in a principal-agent relationship based on Bayesian inference for moral hazard |
title_sort |
optimal design of securitization in a principal-agent relationship based on bayesian inference for moral hazard |
publisher |
University of Tehran |
series |
تحقیقات مالی |
issn |
1024-8153 2423-5377 |
publishDate |
2015-03-01 |
description |
In the securitization process, by selling the mortgage loans to risk-lover investors, originator can allocate the mortgage loans risk to them. In this case, originator may not have an incentive to screen out borrowers, resulting in the moral hazard problem. This paper, within a principal-agent framework, analyzes this agency problem. Investor, to reduce asymmetric information, uses compensation scheme for giving incentives to the originator and by using the Bayesʼ rule, deals with inferring various dimensions of undertaken effort, and incorporates her joint posterior beliefs of the pooled loans’ credit position data and inferred various dimensions of effort into the designing contract problem. The results indicate that the shape of optimal contract is a function of the information content of investors’ observations and inferred knowledge about efforts, suggesting that using additional information prevents originator’s opportunism, the originator more likely performs the obligated tasks when lending the loans to the applicants. |
topic |
ibp stochastic process moral hazard mortgage-backed securities nonparametric bayesian inference optimal design of multi-task compensation scheme |
url |
https://jfr.ut.ac.ir/article_50708_d74f10f8eb9b81e5c7b0c1ffc555a436.pdf |
work_keys_str_mv |
AT ezatollahabbasian optimaldesignofsecuritizationinaprincipalagentrelationshipbasedonbayesianinferenceformoralhazard AT mohsenebrahimi optimaldesignofsecuritizationinaprincipalagentrelationshipbasedonbayesianinferenceformoralhazard AT elhamfarzanegan optimaldesignofsecuritizationinaprincipalagentrelationshipbasedonbayesianinferenceformoralhazard |
_version_ |
1725312682905567232 |