A Lattice Approach to Pricing Fixed‐Rate Mortgages with Default and Prepayment Options
作者:
Wai K. Leung,
C. F. Sirmans,
期刊:
Real Estate Economics
(WILEY Available online 1990)
卷期:
Volume 18,
issue 1
页码: 91-104
ISSN:1080-8620
年代: 1990
DOI:10.1111/1540-6229.00511
出版商: Blackwell Publishing Ltd
数据来源: WILEY
摘要:
Existing models on the pricing of default and prepayment options in fixed‐rate mortgages either use numerical methds or they do not consider refinancing or other transaction costs involved in default and prepayment. We provide in this paper an application of the Boyle [1] lattice model to price secured debt with two risky assets. This model is simple, efficient and capable of considering the major types of transaction costs involved in prepayment and default. Using our model, we estimate the option values under a range of assumptions about the underlying parameters. We also provide some comparisons of the lattice model estimates to other models in the literatur
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