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Option value and auto title loans
Journal of Economics and Business Pub Date : 2021-05-03 , DOI: 10.1016/j.jeconbus.2021.106008
Michael H. Anderson , Raymond Jackson

A title loan is a short- term subprime loan secured by the title of the borrower’s automobile. Upon repayment, the title is retrieved from the lender and the borrower retains the vehicle. In the event of default the lender keeps the title and takes possession of the automobile but has no further recourse if the sale of the auto does not satisfy the outstanding debt. In this paper the borrower’s repayment decision is modeled as a call option with a strike price and option value dependent on loan size and term, interest rate, auto value at expiration and a variable that has not received adequate attention – vehicle quality. Given asymmetric information, the borrower is cognizant as to whether the auto is a peach, lemon or non-fruit and this significantly affects the option value and repayment decision. Under certain conditions the option value of repayment is zero and default may be the better decision even for the owner of a peach. The model is extended to compare the value of the repayment option to the payout of the residual value received from the lender after default. The incentives to rollover the loan are also discussed in terms of the call option value. Analyses are presented of the implications, within the context of the option model, of the use of the auto as collateral and also the likely outcomes for title lenders. Structuring the repayment decision as a call option allows those developing public policy to examine the impact of regulating interest rates, loan term, the loan to auto value ratio and the minimum residual factor.



中文翻译:

期权价值和汽车产权贷款

产权贷款是一种以借款人汽车产权为担保的短期次级贷款。还款后,从贷方取回所有权,借方保留车辆。在违约的情况下,贷款人保留所有权并占有汽车,但如果汽车的销售不能满足未偿债务,则没有进一步的追索权。在本文中,借款人的还款决定被建模为一个看涨期权,其行使价和期权价值取决于贷款规模和期限、利率、到期时的汽车价值以及一个没有得到足够关注的变量——车辆质量。在信息不对称的情况下,借款人知道汽车是桃子、柠檬还是非水果,这显着影响了期权价值和还款决策。在某些条件下,还款的期权价值为零,即使对于桃子的所有者来说,违约也可能是更好的决定。该模型被扩展为将还款选择权的价值与违约后从贷方收到的剩余价值的支付进行比较。还根据看涨期权价值讨论了展期贷款的激励措施。在期权模型的背景下,分析了使用汽车作为抵押品的影响以及产权贷方的可能结果。将还款决策构建为看涨期权,允许制定公共政策的人检查调节利率、贷款期限、贷款与汽车价值比率和最小剩余因素的影响。该模型被扩展为将还款选择权的价值与违约后从贷方收到的剩余价值的支付进行比较。还根据看涨期权价值讨论了展期贷款的激励措施。在期权模型的背景下,分析了使用汽车作为抵押品的影响以及产权贷方的可能结果。将还款决策构建为看涨期权,允许制定公共政策的人检查调节利率、贷款期限、贷款与汽车价值比率和最小剩余因素的影响。该模型被扩展为将还款选择权的价值与违约后从贷方收到的剩余价值的支付进行比较。还根据看涨期权价值讨论了展期贷款的激励措施。在期权模型的背景下,分析了使用汽车作为抵押品的影响以及产权贷方的可能结果。将还款决策构建为看涨期权,允许制定公共政策的人检查调节利率、贷款期限、贷款与汽车价值比率和最小剩余因素的影响。在期权模型的背景下,分析了使用汽车作为抵押品的影响以及产权贷方的可能结果。将还款决策构建为看涨期权,允许制定公共政策的人检查调节利率、贷款期限、贷款与汽车价值比率和最小剩余因素的影响。在期权模型的背景下,分析了使用汽车作为抵押品的影响以及产权贷方的可能结果。将还款决策构建为看涨期权,允许制定公共政策的人检查调节利率、贷款期限、贷款与汽车价值比率和最小剩余因素的影响。

更新日期:2021-05-03
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