Pricing and Hedging Loan Prepayment Risk
نویسندگان
چکیده
Many financial products contain prepayment options. Loan contracts are often structured to provide the borrower with the option to prepay the loan at any time, or on specific dates, prior to the maturity date of the loan. These options are important aspects of these financial products. The most commonly encountered investment product with these feature is the mortgage backed security. Investment contracts issued by life insurance companies contain similar options where the policyholder is allowed to surrender the policy with no surrender charge.
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