Valuing Individual Mortgage Servicing Contracts: An Option-Adjusted Spread Approach
نویسندگان
چکیده
The study develops a model from which an option-adjusted spread approach is utilized for pricing individual mortgage servicing contracts. The pricing model is comprised of a stochastic interest rate process, an exogenous prepayment function and an assumed servicing cost, all of which jointly determines the contract’s future net cash flows and the rate at which to discount these cash flows. Then a scenario analysis is employed to examine a myriad of risk exposures of servicing contracts under various economic environments. The implication of this paper is potentially useful for mortgage servicers to investigate the policy-related issues.
منابع مشابه
Valuing Individual Mortgage Servicing Contracts: A Comparison between Adjustable Rate Mortgages and Fixed Rate Mortgages
This study constructs a valuation model from which an option-adjusted spread approach is employed to value individual mortgage servicing contracts for both adjustable rate and fixed rate mortgages. The valuation model is comprised of an exogenous OTS prepayment model, a stochastic interest rate process, and other servicing fees and costs, all of which jointly determine the servicing contract’s ...
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