Computation of the endogenous mortgage rates with randomized quasi-Monte Carlo simulations (Q2472633)

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.