Default and prepayment modelling in participating mortgages

Varlı, Yusuf; Yıldırım, Yıldıray

doi:10.1016/j.jbankfin.2015.09.003

Cited by 12 publications

(13 citation statements)

References 21 publications

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“…Initially, to define the values of real estate properties in a given developing district, the properties in the given district are assumed as identical for the sake of simplicity. Then, following Ebrahim et al (2011) and Varli and Yildirim (2015), property value of any real estate in the district, H t , is generated with a stochastic process such as:…”

Section: Modelmentioning

confidence: 99%

“…The parameters used for calculating the interest rate in P-TIF are given in Table I. For the selection of these values, benefit is drawn from previous studies in the literature (Varli and Yildirim, 2015). Using the base case parameters presented in Table I, the interest rate, i, in equation ( 9) is calculated via: where 8000 in the denominator of the second fraction refers to the initial loan amount, Q 0 = n Â L Â H 0 = 100 Â 0.8 Â 100 = 8000.…”

Section: Interest Ratementioning

confidence: 99%

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A benchmark modelling for participation-based tax increment financing

Varlı¹,

Övenç²

2020

IJIF

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Purpose This paper aims to present the theoretical and conceptual framework of a new method in public finance called “participation based tax increment financing (P-TIF)” by combining conventional tax increment financing (TIF) within the Shariah-compliance structure. Design/methodology/approach This study develops a benchmark model for P-TIF, which offers a participative contract between both lender and borrower. With the help of this model, a financing schema in P-TIF is established by incorporating stochastic modelling. Possible implications and alternative options of application are also explored with a discussion of challenges. Findings The results mainly indicate that P-TIF promises lenders to be a part of increment from tax earnings, in return for a reduced interest rate. They show how a rise in participation of the lender in a given contract lowers the interest rate. Under the base case scenario, the interest rate is reduced to zero when the participation of the lender in tax increment is set as 50%. Practical implications With the feature of being interest-free, P-TIF can be implied also within the Shariah-compliance framework, thanks to the model it is based on. Additionally, as the model in this paper is parametric, it can be applicable to various cases in Islamic finance. Originality/value To the best of our knowledge, this is the first paper in the literature in the sense that it provides a conceptual idea and respective model for TIF method within Shariah-compliance framework.

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Section: Modelmentioning

confidence: 99%

Section: Interest Ratementioning

confidence: 99%

A benchmark modelling for participation-based tax increment financing

Varlı¹,

Övenç²

2020

IJIF

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“…s = 0), by using equation ( 8), the formula for the interest rate, i, can be obtained as follows: The parameters used for calculating the interest rate in P-TIF are given in Table I. For the selection of these values, benefit is drawn from previous studies in the literature (Varli and Yildirim, 2015). Using the base case parameters presented in Table I, the interest rate, i, in equation ( 9) is calculated via: Note: These are the values for the parameters to calculate the interest rate in P-TIF and the call option in equation ( 10) as c [100, 100, 30, 0.075(30)] for t [ [0, 30] is calculated with respect to equations and calculations derived in the Appendix.…”

Section: Interest Ratementioning

confidence: 99%

A Benchmark Modelling for Participation Based Tax Increment Financing

Varlı

Övenç

2019

SSRN Journal

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“…The majority of the literature on PMs is over two decades old, until relatively recently, little has been written on these mortgages, and even now, except Varli and Yildirim (2015) no literature has addressed the effects of default and prepayment risks in pricing such mortgages. PM needs to be reintroduced to the real estate finance community.…”

Section: History and Literaturementioning

confidence: 99%

Chapter 9 Participating Mortgages: An Alternative to Housing Finance

Varlı¹

2018

Management of Islamic Finance: Principle, Practice, and Performance

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Since the 2007-2008 financial crisis, the markets related to housing finance have been restoring their tools and instruments in order to avoid a new crisis. In this period, while attempting to eliminate structural problems in existing housing finance instruments, on the other hand new products were tried to figure out. In particular, products based on risk sharing have frequently come to the forefront, both in the academia and the industry. In this direction, one such innovative product is the participating mortgage, in which the borrower obtains below-market interest rates in return for a percentage of the property's future appreciation and/or net operating income. Particularly used in conventional markets, participating mortgage can also be applied within the Islamic finance thanks to the model it is based on. This chapter attempts to introduce the method of participating mortgage with detailed background and intellectual investigation. Including the modeling of participating mortgage, this study also shows how this method can be designed under Islamic finance. Furthermore, implications and fields of application are explored with a discussion of challenges. In this chapter, considering the achievements of participating mortgage method, it is asserted that it can enable the product diversity of the Islamic banks, thereby increasing the share in the global banking sector.

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Default and prepayment modelling in participating mortgages

Cited by 12 publications

References 21 publications

A benchmark modelling for participation-based tax increment financing

A benchmark modelling for participation-based tax increment financing

A Benchmark Modelling for Participation Based Tax Increment Financing

Chapter 9 Participating Mortgages: An Alternative to Housing Finance

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