Computation of the endogenous mortgage rates with randomized quasi-Monte Carlo simulations (Q2472633)
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English | Computation of the endogenous mortgage rates with randomized quasi-Monte Carlo simulations |
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Computation of the endogenous mortgage rates with randomized quasi-Monte Carlo simulations (English)
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22 February 2008
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The goal of the paper is to develop the numerical approach to the problem of determining the mortgage rate function, which is given as the fixed point of a functional equation obtained on a base of a certain simplified market model. Namely, the authors assume that: \(\bullet\) the mortgage loans are fully secured, i.e. their model is default free; \(\bullet\) the interest paid by a borrower is determined at the moment of origination; \(\bullet\) the borrowers have the option of prepayment, which is a main source of randomness; \(\bullet\) there is no risk premium, the future cashflows are priced by expectations of their discounted value. To solve the fixed point problem the authors implemented the randomized quasi-Monte Carlo algorithm, which produces fast and reliable results.
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mortgage rates
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prepayment
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randomized quasi Monte Carlo
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