Intensity-Based Models For Pricing Mortgage-Backed Securities With Repayment Risk Under A Cir Process
Under a reduced-form framework, we establish models for pricing mortgage-backed securities with prepayment risk by introducing a stochastic prepayment factor. In the zero-default scenario, the pricing pass-through securities and sequential-pay collateralized mortgage obligation structures are considered. To solve the problems, we introduce a path-dependent variable, from which partial differential equation problems are obtained when the prepayment rate is modeled by a CIR process. Numerical solution to the pricing problem is obtained by developing an explicit characteristics difference scheme.
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Volume (Year): 15 (2012)
Issue (Month): 03 ()
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