Library Header Image
LSE Research Online LSE Library Services

Equilibrium subprime lending

Makarov, Igor and Plantin, Guillaume (2013) Equilibrium subprime lending. Journal of Finance, 68 (3). pp. 849-879. ISSN 0022-1082

Full text not available from this repository.
Identification Number: 10.1111/jofi.12022


This paper develops an equilibrium model of a subprime mortgage market. Our goal is to offer a benchmark with which the recent subprime boom and bust can be compared. The model is tractable and delivers plausible orders of magnitude for borrowing capacities, as well as default and trading intensities. We offer simple explanations for several phenomena in the subprime market, such as the prevalence of teaser rates and the clustering of defaults. In our model, both nondiversifiable and diversifiable income risks reduce debt capacities. Thus, debt capacities need not be higher when a larger fraction of income risk is diversifiable.

Item Type: Article
Official URL:
Additional Information: © 2013 The American Finance Association
Divisions: Finance
Financial Markets Group
Subjects: H Social Sciences > HG Finance
Date Deposited: 06 Aug 2013 13:58
Last Modified: 20 Sep 2021 02:50

Actions (login required)

View Item View Item