Numerical Valuation of Fixed Rate Mortgages
نویسنده
چکیده
This paper considers the value of a fixed rate mortgage where the borrower has the choice to make early payment. The contract value is formulated in terms of integral equations with the optimal early exercise boundary embedded. A fast and effective algorithm has been established for solving the problem numerically. A novelty quadrature method has been derived to handle the singular integrals. Simulations have been made with a broad range of parameters to validate the performance of the algorithm. Analytical features of the problem are illustrated with numerical examples.
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