Can an Islamic Model of Housing Finance Cooperative Elevate the Economic Status of the Underprivileged?.

This paper was refined during my sabbatical study at James Madison University (JMU). I appreciate the hospitality of JMU particularly that of Ehsan Ahmed. I have benefited from the critical comments of the participants of the seminars at James Madison University; University of Birmingham; University of Glasgow; the 2006 Conference on Computing in Economics and Finance (in Cyprus); the 2007 IIUM International Conference (in Malaysia); at the 2007 Workshop on Default Risk and Financial Distress (in Rennes, France), the 2007 Product Development and Management Association Conference (in Bangalore, India); the 2008 International Conference on Business and Finance (in Hyderabad, India); the 2008 International AREUEA Conference (in Istanbul, Turkey); the 2008 Workshop of European Network of the Economics of Religion (in Edinburgh, UK); and the 2008 Symposium on Religion, Markets and Society (in Nottingham, UK) on earlier drafts of the paper. I am also grateful to the following individuals for their helpful suggestions: Bruce Brunton, Humayon Dar, Mohammad Omar Farooq, Diana Mitlin, Kelly Morris, Peter Oliver, Barkley Rosser, Peer Smets, Ghulam Sorwar, Rafal Wojakowski and Robert Young. All remaining errors are mine.ASCRA, Asset Bubble, Mutual Bank, Inflation, Mortgage Design,and ROSCA.

The Futures Pricing Puzzle

This paper models commodity futures in a rational expectations equilibrium specifically (i) incorporating the conflict of interests between Hedgers (Producers-Consumers) and Speculators and (ii) superimposing constraints to immunize the real sector of the economy from shocks of excessive futures contracting. We extend the framework of Newbery and Stiglitz (1981), Anderson and Danthine (1983) and Britto (1984) to attribute the conflicting and puzzling results in the empirical literature to the presence of multiple equilibria ranked in a pecking order of decreasing pareto-efficiency. Thus, we caution empirical researchers on making inferences on data embedded with moving equilibria, as it can render their analysis of asset pricing mechanism incomprehensible. Finally, we rationalize the imposition of position limits by policy makers to help steer the equilibria to pareto-inferior ones, which make the real sector of the economy more resilient to shocks from the financial sectorContango, Expectations, Normal Backwardations

Can an Islamic model of housing finance cooperative elevate the economic status of the underprivileged?

A formal home loan is onerous to subprime borrowers in efficient markets. This can deter homeownership for financially strapped individuals, leading to a market failure. This paper proposes a special form of cooperative mortgage financing (practiced in Oman) to overcome this market failure. We integrate the literature of Mortgage Design with that of informal savings schemes (i.e., ROSCAs/ ASCRAs) to illustrate that this mode of financing dissipates credit risk better than the formal mode of financing. It is also resilient to volatility of interest rates and allows prepayments without any additional charges. Finally, we verify the assertions of Besley et al. (1994), and Hart and Moore (1998) that cooperative mortgages are pareto-superior to formal mortgages in special cases

Continuous Workout Mortgages

This paper models Continuous Workout Mortgages (CWMs) in an economic environment with refinancings and prepayments by employing a market-observable variable such as the house price index of the pertaining locality. Our main results include: (a) explicit modelling of repayment and interest-only CWMs; (b) closed form formulae for mortgage payment and mortgage balance of a repayment CWM; (c) a closed form formula for the actuarially fair mortgage rate of an interest-only CWM. For repayment CWMs we extend our analysis to include two negotiable parameters: adjustable "workout proportion" and adjustable "workout threshold." These results are of importance as they not only help understanding the mechanics of CWMs and estimating key contract parameters. These results are of importance as they not only help in the understanding of the mechanics of CWMs and estimating key contract parameters, but they also provide guidance on how to enhance the resilience of the financial architecture and mitigate systemic risk.Continuous Workout Mortgage (CWM), Repayment, Interest-only, House price index, Prepayment intensity, Cap and floor on continuous flow

Continuous Workout Mortgages

This paper models Continuous Workout Mortgages (CWMs) in an economic environment with refinancings and prepayments by employing a market-observable variable such as the house price index of the pertaining locality. Our main results include: (a) explicit modelling of repayment and interest-only CWMs; (b) closed form formulae for mortgage payment and mortgage balance of a repayment CWM; (c) a closed form formula for the actuarially fair mortgage rate of an interest-only CWM. For repayment CWMs we extend our analysis to include two negotiable parameters: adjustable “workout proportion” and adjustable “workout threshold.” These results are of importance as they not only help understanding the mechanics of CWMs and estimating key contract parameters. These results are of importance as they not only help in the understanding of the mechanics of CWMs and estimating key contract parameters, but they also provide guidance on how to enhance the resilience of the financial architecture and mitigate systemic risk

Continuous Workout Mortgages

Continuous Workout Mortgage (CWM) balance and payments are indexed using market-observable house price index in an economic environment with prepayments. Our main results include: (a) explicit modelling of repayment and interest-only CWMs; (b) closed form formulas for mortgage payment and mortgage balance of a repayment CWM; (c) a closed form formula for the actuarially fair mortgage rate of an interest-only CWM. For repayment CWMs we extend our analysis to include two negotiable parameters: adjustable "workout proportion" and adjustable "workout threshold." These results are of importance as they not only help in the understanding of the mechanics of CWMs and estimating key contract parameters, but they also provide guidance on how to enhance the resilience of the financial architecture and mitigate systemic risk.

A Note on the Optimal Design of an Office Building

This study examines the economics of the optimal footprint area, atrium area, and height of an office building. We extend the work of Doiron, Shilling and Sirmans (1992) by incorporating realistic revenue and cost functions and reverting to the sufficient conditions of optimaility.