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

DOI10.1016/J.MCM.2006.11.016MaRDI QIDQ2472633zbMATH OpenOpenAlexFDO

Authors Yevgeny Goncharov, Giray Ökten, M. Shah

Publication date 22 February 2008

Published in Mathematical and Computer Modelling (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1016/j.mcm.2006.11.016

zbMATH Keywords

mortgage ratesprepaymentrandomized quasi Monte Carlo

Mathematics Subject Classification ID

Fixed-point theorems (47H10) Monte Carlo methods (65C05) Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)

Review text

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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Cites work

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Cited in

(3)

• Generalized von Neumann-Kakutani transformation and random-start scrambled Halton sequences
• Computing the endogenous mortgage rate without iterations
• ON THE EXISTENCE OF THE ENDOGENOUS MORTGAGE RATE PROCESS

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