On a class of adjustable rate mortgage loans subject to a strict balance principle
AbstractWe describe the background and the basic funding mechanisms for the type of adjustable rate mortgage loans that were introduced in the Danish market in 1996. Each loan is funded separately by tap issuing pass-through mortgage bonds (“strict balance principle). The novelty is a funding mechanism that uses a roll-over strategy, where long term loans are funded by sequentially issuing short term pass-through bonds, and the first issuer of these loans obtained a patent on the funding principles in 1999. Publicly available descriptions of the principles leave an impression of very complicated numerical algorithms. The algorithms described here show that the essentials can be reduced to a “back of an envelope" complexity.
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Bibliographic InfoPaper provided by Copenhagen Business School, Department of Finance in its series Working Papers with number 2004-11.
Length: 37 pages
Date of creation: 07 Jan 2005
Date of revision:
Contact details of provider:
Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark
Phone: +45 3815 3815
Web page: http://www.cbs.dk/departments/finance/
More information through EDIRC
Adjustable rate mortgages; balance principle; patent; yield curve riding;
Find related papers by JEL classification:
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-07-02 (All new papers)
- NEP-FIN-2006-07-02 (Finance)
- NEP-URE-2006-07-02 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Joao Cocco & John Campbell, 2004.
"Household Risk Management and Optimal Mortgage Choice,"
Econometric Society 2004 North American Winter Meetings
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- John Campbell & Joao F. Cocco, 2002. "Household Risk Management and Optimal Mortgage Choice," Computing in Economics and Finance 2002 47, Society for Computational Economics.
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- Joao F. Cocco, 2005. "Portfolio Choice in the Presence of Housing," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 535-567.
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