An Intensity-Based Approach To The Valuation Of Mortgage Contracts And Computation Of The Endogenous Mortgage Rate
This paper gives a general mortgage model subject to sub-optimal prepayment behavior of borrowers. The proposed classification of approaches to the option-based and mortgage-rate-based (MRB) specification is validated by the fact that these two approaches require different analytical and numerical tools. With the option-based specification of the prepayment intensity, our model is the first continuous-time model; this gives advantage in the numerical treatment of the model. We propose a new approach based on the MRB idea with the endogenous mortgage rate process. The mortgage rate process is defined and the existence of a solution is proven for the option-based specification of the prepayment process. A numerical procedure for finding the endogenous mortgage rate is proposed.
Volume (Year): 09 (2006)
Issue (Month): 06 ()
|Contact details of provider:|| Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml|
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:09:y:2006:i:06:p:889-914. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim)
If references are entirely missing, you can add them using this form.