Mortgages and Markov Chains: A Simplified Evaluation Model
This paper has two purposes. The first is purely expository: to introduce stochastic interest-rate models and security-evaluation methods in a simple mathematical setting. Specifically, we assume the uncertainties in the model are represented by a discrete-time, finite-state Markov chain. Second, using this framework, we present a relatively simple model for the evaluation of mortgage-backed securities.
Volume (Year): 39 (1993)
Issue (Month): 6 (June)
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