OPTIMAL DESIGN OF SECURITIZATION IN A PRINCIPALAGENT RELATIONSHIP BASED ON BAYESIAN INFERENCE FOR MORAL HAZARD

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ABBASIAN EZATOLLAH; EBRAHIMI MOHSEN; FARZANEGAN ELHAM

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Journal: FINANCIAL RESEARCH Year:2015 | Volume:17 | Issue:1 Page(s): 123-140

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Title

OPTIMAL DESIGN OF SECURITIZATION IN A PRINCIPALAGENT RELATIONSHIP BASED ON BAYESIAN INFERENCE FOR MORAL HAZARD

Author(s)

ABBASIAN EZATOLLAH | EBRAHIMI MOHSEN | FARZANEGAN ELHAM | Issue Writer Certificate

Keywords

IBP STOCHASTIC PROCESSQ2

MORAL HAZARDQ2

MORTGAGE-BACKED SECURITIESQ2

NONPARAMETRIC BAYESIAN INFERENCEQ2

OPTIMAL DESIGN OF MULTI-TASK COMPENSATION SCHEMEQ2

Abstract

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 Bayes􁦤 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.

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APA: Copy

ABBASIAN, EZATOLLAH, EBRAHIMI, MOHSEN, & FARZANEGAN, ELHAM. (2015). OPTIMAL DESIGN OF SECURITIZATION IN A PRINCIPALAGENT RELATIONSHIP BASED ON BAYESIAN INFERENCE FOR MORAL HAZARD. FINANCIAL RESEARCH, 17(1 ), 123-140. SID. https://sid.ir/paper/91186/en

Vancouver: Copy

ABBASIAN EZATOLLAH, EBRAHIMI MOHSEN, FARZANEGAN ELHAM. OPTIMAL DESIGN OF SECURITIZATION IN A PRINCIPALAGENT RELATIONSHIP BASED ON BAYESIAN INFERENCE FOR MORAL HAZARD. FINANCIAL RESEARCH[Internet]. 2015;17(1 ):123-140. Available from: https://sid.ir/paper/91186/en

IEEE: Copy

EZATOLLAH ABBASIAN, MOHSEN EBRAHIMI, and ELHAM FARZANEGAN, “OPTIMAL DESIGN OF SECURITIZATION IN A PRINCIPALAGENT RELATIONSHIP BASED ON BAYESIAN INFERENCE FOR MORAL HAZARD,” FINANCIAL RESEARCH, vol. 17, no. 1 , pp. 123–140, 2015, [Online]. Available: https://sid.ir/paper/91186/en

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