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Designing amortization plans by fairness

Author

Listed:
  • Rosario Maggistro

    (University of Trieste)

  • Mario Marino

    (University of Trieste)

  • Renato Pelessoni

    (University of Trieste)

  • Liviana Picech

    (University of Trieste)

Abstract

Amortization plans are well-known financial operations to repay interest-bearing loans through a sequence of periodic payments. Since amortization plans are generally settled according to the compound interest law, some questions arise about the supposed presence of anatocism and the consequent legal matters. In this paper, we derive the traditional amortization plans by means of an alternative approach, based on the concept of fair amortization and without assuming a financial law. We find that the traditional amortization plan with constant installments can be derived in this way and the supposed presence of anatocism is excluded. An investigation on the possible anatocism, in case of delayed payment of interest, completes the discussion.

Suggested Citation

  • Rosario Maggistro & Mario Marino & Renato Pelessoni & Liviana Picech, 2024. "Designing amortization plans by fairness," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 47(2), pages 445-467, December.
    • Handle: RePEc:spr:decfin:v:47:y:2024:i:2:d:10.1007_s10203-023-00424-y
    DOI: 10.1007/s10203-023-00424-y
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