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This article examines how the Asylum Support Enablement (ASPEN) card – a prepayment card provided to UK asylum seekers – enacts their alterity in ways that problematise the techno-optimist narrative of digital technologies as promoters of financial inclusion. Drawing on analysis of 53 documents alongside 21 interviews with asylum seekers, refugees, advocacy organisations and technology providers, the article proceeds in four steps. First, we trace the migration of Prepaid Financial Services’ (PFS) prepayment technology from the humanitarian context of UNHCR’s Cash Assistance Programme in Greece to its adoption in UK state practices, considering what this means for the mobility of policy norms inscribed in digital technologies. Second, building on the concept of ‘alterity processing’, we examine how the UK Home Office discursively co-constructs asylum seekers as ‘deviant subjects’ and its bureaucratic entities as indispensable. Third, we analyse how this co-construction is used to justify asylum seekers’ exclusion from mainstream banking, rendering them dependent on the ASPEN card. Finally, we elucidate how the card’s surveillance, encoded rules, and induced precarity govern asylum seekers’ behaviours. We thus demonstrate how financial technologies – as deployed across humanitarian and statist welfare contexts – engender new lines of marginalisation and forms of social control. [ABSTRACT FROM AUTHOR]

The text aims to provide an insight into the everyday automotive life of owners of passenger cars during the last two decades of the Polish People's Republic. The turning point of the 1960s and 1970s in the communist bloc countries marked a shift towards consumption, with a particular emphasis on individual motorization. In Poland, the new ruling team under Edward Gierek announced a significant increase in the production of passenger cars. The licensing agreement for manufacturing the Fiat 126p at the Passenger Car Factory was intended to be a milestone in the development of individual motorization. The people enthusiastically embraced the government's plans, and there was a mass prepayment for the 'maluch' (Fiat 126p). Unfortunately, throughout the two decades discussed, it was impossible to meet the popular demand for this car fully. The altered sales system in 1981 failed due to production shortages, and the waiting period extended to even ten years. As a result, Poles turned massively towards car markets. Acquiring a car and its subsequent maintenance involved specific expenses. Therefore, the possibilities of obtaining and using a car were tied to a certain income level. The sharp increase in the number of cars significantly impacted leisure activities, especially the development of automotive tourism. [ABSTRACT FROM AUTHOR]

This study examines the relationship between securitization and loan performance using proprietary loan-level data from a Chinese bank. Securitized loans exhibit lower ex-post default rates and prepayment chances compared to the loans retained on the bank's balance sheet, suggesting no adverse selection or moral hazard within the Chinese securitization market. Our finding is robust to controlling for possible endogeneity of loan selection by employing propensity score matching and instrumental variable estimators. Exploiting the introduction of the New Asset Management Rule as a quasi-natural experiment, which alters banks' business model and eliminates other options of credit risk transfer except for securitization, we show worse loan performance after the new regulation, in line with deterioration of the bank's incentive. This unintended consequence of the New Asset Management Rule, aimed at curbing shadow banking activities of banks, highlights the emergence of risk in the securitization sector of the shadow banking. [ABSTRACT FROM AUTHOR]

Because most mortgages in the United States are securitized in agency mortgage-backed securities (MBS), yield spreads on MBS are a key determinant of homeowners' funding costs. We study variation in MBS spreads in the time series and across securities and document that MBS spreads show a pronounced cross-sectional smile with respect to the securities' coupon rates. We present a new pricing model that uses "stripped" MBS prices to identify the contribution of non-interest-rate prepayment risk to spreads and find that this risk explains the smile, whereas the time-series spread variation is mostly accounted for by nonprepayment risk factors. Received March 30, 2015; editorial decision November 21, 2018 by Editor Leonid Kogan. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

Mortgage dollar roll, the most common financing strategy for agency MBS, differs from repo in that the returned collateral can differ from those received. Also, MBS ownership changes hands in the funding period. We show that dollar roll "specialness," how much implied financing rates fall below MBS repo rates, (1) increases in the value of the cheapest-to-deliver option, (2) decreases in the leverage of primary dealers, (3) decreases in prepayment risk exposure during the financing period, and (4) decreases in MBS returns. The Federal Reserve's dollar roll sales in quantitative easing operations are associated with lower specialness. Received February 3, 2016; editorial decision July 30, 2018 by Editor Itay Goldstein. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

Determining the joint pricing and ordering policy is a challenging task for policy-makers dealing with perishable items. This research deals with the inventory coordination for a decaying commodity under a non-linear price-sensitive demand structure where the policy-maker completes the payment partially in advance, exploiting the multiple installments facility to control supply disruptions. Moreover, an inventory-out situation is incorporated to make the model more representative; shortages are backlogged partially through a variable rate in exponential form, depending on the customer waiting times. Though the formulated inventory coordination creates a highly complex optimization problem, the existence of the joint optimal pricing and ordering policy is explored by developing several theoretical outcomes. Three numerical illustrations are adopted to ensure the effectiveness of the model in providing the joint optimal pricing and ordering policy for the decision manager. Furthermore, to visualize the concavity of the average profit of the policy manager, as well as to demonstrate the adequacy of the optimum condition, MATLAB software was utilized. Finally, sensitivity studies for known key parameters are done using graphic presentation and a few supportive guidelines for the manager are also shown. The inventory manager should motivate the supplier to allow a higher installment frequency to implement the prepayment regulation, thus reducing the capital cost against the prepayment amount. [ABSTRACT FROM AUTHOR]

We develop a three-factor no-arbitrage model for valuing mortgage-backed securities in which we solve for the implied prepayment function from the cross-section of market prices. This model closely fits the cross-section of mortgage-backed security prices without needing to specify an econometric prepayment model. We find that implied prepayments are generally higher than actual prepayments, providing direct evidence of significant macroeconomic-driven prepayment risk premiums in mortgage-backed security prices. We also find evidence that mortgage-backed security prices were significantly affected by Fannie Mae credit risk and the Federal Reserve's quantitative easing programs. [ABSTRACT FROM AUTHOR]

Purpose: This paper aims to propose an Islamic compliant approach that deals with the prepayment rebate on debts resulting from cost-plus sales and their accompanied sale-based financing contracts. The proposed approach uses the time value of money concept without charging excessive fees from the debtor in the early settlement of debts. Design/methodology/approach: The paper uses a qualitative analysis via analyzing and reviewing relevant literature. A quantitative analysis is subsequently used with a proposed computation that addresses prepayment rebate accompanied by debts resulting from cost-plus sales. Findings: The proposed approach results in a rebate amount for the debtor greater than those rebate amounts resulting from either conventional finance techniques or current Islamic finance practices. Research limitations/implications: The application of the descending rebate proposed computation in this paper is restricted to cost-plus sale and their accompanied sale-based financing contracts only. The computation does not address any agreement or deal that may involve a rebate without a selling transaction. Originality/value: The paper criticizes the prevailing practices for computing rebates in the case of debt prepayment, whether those nominated by conventional finance or others currently employed by most Islamic financial institutions. The paper also introduces a new rebate computation aimed to comply with Islamic finance's real context. [ABSTRACT FROM AUTHOR]

We present a simple, linear asset pricing model of the cross section of Mortgage‐Backed Security (MBS) returns. MBS earn risk premia as compensation for their exposure to prepayment risk. We measure prepayment risk and estimate risk loadings using prepayment forecasts versus realizations. Estimated loadings on prepayment risk decrease monotonically in securities' coupons relative to the par coupon, consistent with the predicted effect of prepayment on bond value. Prepayment risk appears to be priced by specialized MBS investors. The price of prepayment risk changes sign over time with the sign of a representative MBS investor's exposure to prepayment shocks. [ABSTRACT FROM AUTHOR]

We extend the classical asset-selling problem to include debt repayment obligation, selling capacity constraint, and Markov price evolution. Specifically, we consider the problem of selling a divisible asset that is acquired through debt financing. The amount of asset that can be sold per period may be limited by physical constraints. The seller uses part of the sales revenue to repay the debt. If unable to pay off the debt, the seller must go bankrupt and liquidate the remaining asset. Our analysis reveals that in the presence of debt, the optimal asset-selling policy must take into account two opposing forces: an incentive to sell part of the asset early to secure debt payment and an incentive to delay selling the asset to capture revenue potential under limited liability. We analyze how these two forces, originating from debt financing, will distort the seller's optimal policy. [ABSTRACT FROM AUTHOR]

Workers often have a wide array of corporate- and noncorporate-sponsored plans that allow them to save for retirement on a tax-advantaged basis. The prepayment of a home mortgage, which is most similar in character to the Roth IRA, is usually not considered a tax-advantaged retirement savings option, perhaps because investors do not see or comprehend the future revenue or retirement resources (cash flows) prepayment creates. Our comparison between the prepayment of a home mortgage and contributing to a Roth IRA is strictly from a wealth maximization standpoint. Mortgage prepayment is found to be an effective and essentially equivalent alternative to a Roth IRA, especially for people no longer eligible for Roth contributions due to phase-out rules. [ABSTRACT FROM AUTHOR]

While much is known about the characteristics of consumers or businesses that obtain credit lines, relatively little is known empirically about credit line utilization after origination. This study fills that gap by testing two interrelated hypotheses concerning borrower credit quality and credit line utilization. The empirical analysis confirms that borrowers with higher expectations of future credit quality deterioration originate credit lines to preserve financial flexibility. Furthermore, we estimate a competing risks model that confirms our predictions concerning changes in borrower credit line utilization in response to borrower credit quality shocks. [ABSTRACT FROM AUTHOR]

The article focuses on laws implemented on the input tax deduction in cases of prepayments for combined heat and power plants. Topics discussed include adjustment of the input tax, tax claims in prepayments, laws on electricity generation, leasing of cogeneration plants and structural distribution of cogeneration plants.

Financial institutions, government-sponsored enterprises, and asset-backed security investors are often exposed to delinquency and prepayment risk from large numbers of loans. Examples include mortgages, credit cards, and auto, student, and business loans. Because of the size of the pools, the measurement of these exposures is computationally expensive. This paper develops and tests efficient numerical methods for the analysis of large pools of loans as well as asset-backed securities backed by such pools. For a broad class of statistical and machine learning models of loan-level risk in discrete time, we prove a law of large numbers and a central limit theorem for the pool-level risk. The asymptotics are then used to construct computationally efficient approximations for a large pool. The approximations aggregate the full loan-level dynamics, making it possible to take advantage of the detailed loan-level data often available in practice. We furthermore prove a convergence rate for the approximation and a uniform integrability result. The latter allows the approximation to be applied to a wide class of pool-level risk statistics. To demonstrate the effectiveness of our approach, we implement it on a data set of over 25 million mortgages. The results show the accuracy and speed of the approximation in comparison to brute-force simulation of a pool, for a variety of pools with different risk profiles. The online appendix is available at https://doi.org/10.1287/mnsc.2017.2947. This paper was accepted by Noah Gans, stochastic models. [ABSTRACT FROM AUTHOR]

Online lending provides a means of fast financing for borrowers based on their creditworthiness. However, borrowers may undermine this agreement due to early repayment or default, which are two major concerns for the platform and lenders, since both affect the profitability of a loan. While default risk is frequently focused on credit scoring literature, prepayment has received much less attention, despite a higher prepayment rate being observed in online lending when compared with default. This article uses multivariate logistic regression to predict the probability of both the underlying prepayment and default risks. Real consumer lending data of 140,605 unsecured loans provides evidence that these two events have their own distinct patterns. We consider systemic risk by incorporating macroeconomic factors in modeling and address the influence of economic conditions, which are lessons learnt from the last financial crisis. The out-of-sample validation has shown that both prepayment and default can be accurately predicted. This article highlights the necessity of regulations on prepayment given the fast growing online lending market. [ABSTRACT FROM AUTHOR]

The article compares the U.S. and Danish mortgage finance systems. It examines the implications of the structures of the Danish mortgage market for U.S. housing finance reform, including the fact that Danish mortgage banks issue covered bonds collateralized by mortgage loans on a match funded basis. The mortgage credit risk and the interest rate and prepayment risk facing Danish mortgage banks are discussed, as well as the absence an explicit government guarantee in the Danish mortgage market.

This paper develops a pricing model and derives a closed-form formula for valuing mortgage-backed securities (MBSs) that embed a barrier option feature while the optimal prepayment or refinancing choices of borrowers are endogenously determined. Given that "real estate investors" tend to prepay a loan relentlessly, an MBS with a high concentration of investor borrowers implies a lower MBS value. We specify the prepayment behavior of borrowers by using the first hitting time as a proxy for the trigger point of prepayment when house prices or interest rates hit a pre-determined barrier. Our results show that the MBS value is positively related to loan to value and house price volatility while negatively related to the proportion of real estate investors and interest rate volatility. We also find evidence which shows that the MBS value may increase due to the effects of the "longevity" of mortgages, which outweigh the effects of default or prepayment as house price volatility increases. This model provides a faster pricing tool of MBSs than Monte Carlo simulation while retaining higher model accuracy and consistency than the hazard model approach. [ABSTRACT FROM AUTHOR]

Abstract We develop a dynamic structural model for the wealth of individual mortgagors in a mortgage pool. We model the process of default and prepayment and, by taking a limit as the pool size goes to infinity, derive a stochastic partial differential equation (SPDE) which can be used to describe the evolution of the loss process from the pool. We prove existence and uniqueness of solutions to this SPDE and show how our model is able to capture, in a flexible way, the prices of credit risky tranches of mortgage-backed securities under different market conditions. [ABSTRACT FROM AUTHOR]

Understanding mortgage termination behavior is crucial for valuating mortgage-backed securities. Analyzing a unique loan-level dataset, this study examines the characteristics of mortgage prepayment and default behaviors in the Korean housing and housing finance markets. We also analyze mortgage termination behaviors across regions, loan purposes, and periods. The results suggest that the prepayment rate of fixed-rate mortgages (FRMs) and the ratio of adjustable-rate mortgages to FRMs can provide meaningful signals for the Korean household economy. Although the macro-prudential policies pertaining to the loan-to-value ratio (LTV) and debt-to-income ratio (DTI) are very effective, their effects can vary depending on the region or loan purpose. Furthermore, the DTI and credit score cannot always identify the default risks of mortgages not intended for housing purchases even though such mortgages are more vulnerable to macroeconomic changes. The observed changes in default behavior indicate that the government's policies to promote fixed-rate loans have achieved a certain degree of success. [ABSTRACT FROM AUTHOR]

This article develops a generalized valuation model for fixed rate residential mortgages. The authors examine provisions that may allow termination of mortgage contracts for various reasons including through prepayments or defaults. They find that prepayment and default are substitutes but they respond differently to the economic environment. They also determine that the type of insurance plays no role in value, whether it is full insurance or only limited to a percentage of the loan amount.

The article examines the effects of interest rates on mortgage prepayments in the U.S. Studying this subject is important due to the financial condition of saving and loan and saving bank institutions in the U.S. Mortgages which are due on sale and have fixed interest rates are key players in a bank's portfolio and, because of this, their economic net worth depends on the effective or expected maturity of these assets. Data on 3,938 California mortgages active in 1975 and 1976 was collected and then those mortgages were followed through to 1982.

Research suggests that individuals mentally track the costs and benefits of a consumer transaction for the purpose of reconciling those costs and benefits on completion of the transaction (Prelec and Loewenstein 1998; Thaler 1980,1985). In transactions where costs precede benefits, this can lead to a systematic and economically irrational attention to sunk costs (Arkes and Blumer 1985; Thaler 1980). In this article, we consider economic exchanges in which costs significantly precede benefits, as with many prepayment types of consumer transactions. We predict a consumer will gradually adapt to a historic cost with the passage of time, thereby decreasing its sunk-cost impact on the consumption of a pending benefit. We label this process of gradual adaptation to costs "payment depreciation." In a series of experiments, we find evidence of payment depreciation across a range of consumer transactions and offer insight into the behavioral implications of temporally separating costs from benefits. [ABSTRACT FROM AUTHOR]

Examines mortgage valuation under optimal prepayment. Properties of the efficient risk sharing theory; Correlation between mortgaged property selling and income surprises; Relationship between borrower's mobility and the choice between fixed-rate and adjustable-rate mortgages.

This article presents a procedure for evaluating collateralized mortgage obligation (CMO) tranches. The solution procedure is in the spirit of a dynamic programming problem in which an individual mortgagor's decision to prepay is the feedback control variable--the mortgagor seeks to minimize the value of the mortgage subject to refinancing costs. We employ a two-step procedure to solve this dynamic programming problem. The first step uses an implicit finite difference backward solution procedure to determine the "optimal" prepayment boundary for a class of mortgagors, each of whom confronts the same proportional refinancing cost. This step is repeated for several different classes of mortgagors that differ in the level of refinancing costs that they confront. The outcome of this first step is a series of prepayment boundaries--one set of boundaries for each level of refinancing costs (i.e., one set of boundaries for each refinancing cost category of mortgagors). In the second step, the prepayment boundaries determined in the first step are used in conjunction with Monte Carlo simulation to value the CMO tranches. The essence of the second step is that when the simulated interest rate hits the boundary for a particular class, it triggers a prepayment scenario for that class of mortgagors. We conduct extensive sensitivity analysis to determine the robustness of this approach (and our solution procedure) to alternative single-factor models of the term structure of interest rates and to alternative specifications of the distribution of refinancing cost levels confronted by mortgagors. The sensitivity analysis indicates that CMO tranche valuation is not particularly sensitive to alternative models of the term structure so long as the models are consistent with the current yield curve, but, even when alternative specifications of the refinancing cost categories generate nearly identical values for the collateral underlying the CMO (i.e., the generic mortgage-backed securiti [ABSTRACT FROM AUTHOR]

Our study uses a multinomial logit model to analyze the concurrent termination experience of adjustable-rate and fixed-rate mortgages. A new set of ARM-specific interactive determinants expands the conventional FRM specification to isolate the unique termination behavior of ARMs. We find that expected rate adjustments and large lifetime caps are positively related to ARM termination probabilities while long adjustment frequencies are inversely related. Caps, both periodic and lifetime, have a secondary, inverse effect on termination probabilities when interest-rate movements exceed cap limits. The model also shows that interest-rate expectations affect FRM terminations more strongly than ARM terminations. [ABSTRACT FROM AUTHOR]

We provide a rationale for the presence of points in mortgage loan contracts. Our analysis builds on two key features. First, insurance markets are unavailable for labor income. Second the "duo-on-sale" clause allows banks to offer loan contracts which partially insure against fluctuations in labor income. If explicit prepayment penalties are prohibited by law, points serve effectively as prepayment penalties. We also examine environments where such penalties are not prohibited and show that points will be used if interest rates cannot depend on the size of the loan. [ABSTRACT FROM AUTHOR]

This paper puts forward a valuation framework for mortgage-backed securities. Rather than imposing an optimal, value-minimizing call condition, we assume that at each point in time there exists a probability of prepaying; this conditional probability depends upon the prevailing state of the economy. To implement our valuation procedure, we use maximum-likelihood techniques to estimate a prepayment function in light of recent aggregate GNMA prepayment experience. By integrating this empirical prepayment function into our valuation framework, we provide a complete model to value mortgage-backed securities. [ABSTRACT FROM AUTHOR]

The due-on-sale clause contained in most conventional home mortgage contracts is equivalent to a prepayment penalty equal to the difference between the face value and market value of the loan. We analyze a bilateral game with asymmetric information and show that the bank demands the full penalty unless the market value of the loan is sufficiently low. In that case, the bank demands a prepayment penalty which is independent of the market value of the loan in order to induce additional prepayments. We also demonstrate, by a risk-sharing argument, that the due-on-sale clause is optimal in some settings, even though it eliminates some beneficial home sales. [ABSTRACT FROM AUTHOR]

The "Rule of 78" is an approximate method for calculating the finance charge refund due the borrower of a loan who elects to prepay the loan before the original term is complete. This paper derives the standard loan equations and the Rule of 78 and performs an error analysis. It concludes that the Rule is a poor approximation to the exact value when the number of payments or interest rate is large. Since the equation for the correct refund amount is easy to evaluate using standard present value tables, it recommends that the use of the Rule be discontinued. [ABSTRACT FROM AUTHOR]

In 2016, the Delaware General Assembly amended section 262 of the Delaware General Corporation Law to provide surviving corporations with the option to prepay stockholders in appraisal cases. Specifically, the amendment gives a surviving corporation the option to pay, in advance of a trial, to determine the stock's fair value, whatever amount per share that it chooses. Doing so cuts off the statutory interest on the prepaid amount, which theoretically should disincentivize investors from filing appraisal petitions solely to turn a profit from the statutory interest rate-a strategy known as "interest-rate arbitrage." But in amending the statute, the General Assembly did not specify whether the petitioning stockholders must return to the corporation any amount by which the prepayment exceeds the court's determination of fair value. The resulting ambiguity has not only caused uncertainty among litigants and costly motion practice in the Delaware Court of Chancery-a consequence, ironically, that the legislative amendment was aimed at avoiding-but has also diminished the amendment's effect on curbing interest-rate arbitrage and, more generally, appraisal arbitrage. This article explores the history behind the prepayment amendment, including the evolution of Delaware's appraisal statute and two Court of Chancery cases in which the Court foresaw the need for an effective prepayment system. This article also examines the legislative history of the 2016 amendment and other scholars' suggestions for dealing with the statutory ambiguity. Finally, the article offers a new model for legislative reform, one that retains section 262's core and advances the policy objectives that underlie Delaware's appraisal system. [ABSTRACT FROM AUTHOR]

This paper exploits a unique set of Dutch micro data between 2006 and 2014 to analyze the heterogeneous responses in prepayment behavior to changes in financial incentives. Prepayment is defined as paying back a part of the mortgage on top of the contractual payment schedule, excluding refinancing. Because interest rates on savings have decreased while the rates on existing mortgages are generally fixed for some years, the value of prepaying a mortgage has increased. This corresponds with the surge in prepayments at the Dutch mortgage market. Using various econometric specifications, that take into account unobserved heterogeneity and endogeneity, the paper finds that incentives to prepay explain only a part of prepayment behavior. However, incentives to prepay explain a much larger part of prepayments for wealthier households and for households with a high net-of-tax interest rate differential. [ABSTRACT FROM AUTHOR]

Securitization has been widely assigned blame for contributing to the recent mortgage market meltdown and ensuing financial crisis. In this paper, we employ the Office of the Comptroller of the Currency (OCC) Home Equity database to develop estimates of default and prepayment probabilities for home equity lines of credit (HELOCs) originated during 2004–2008 and tracked through 2014. The results show that securitized HELOCs bear both higher default and prepayment risk compared to loans held in lender portfolios, consistent with adverse selection in the securitization process. Spreads on securitized HELOCs are higher as well, consistent with a "lemons spread." The results are robust across multiple specifications, including models that address the endogenous decision to securitize, and support adoption of the credit risk retention rule for asset-backed securities. [ABSTRACT FROM AUTHOR]

Using a novel data on payment choice in export transactions, this study shows that financing cost in a country is more important in terms of offering (undertaking) post-shipment (prepayment) terms in exports (imports) for the industries that rely more on external finance. [ABSTRACT FROM PUBLISHER]

A mortgage borrower has several options once a foreclosure proceedings is initiated, mainly default and prepayment. Using a sample of FHA mortgage loans, we develop a dependent competing risks framework to examine the determinants of time to default and time to prepayment once the foreclosure proceedings is initiated. More importantly, we examine the interdependence between default and prepayment, through both the correlation of the unobserved heterogeneity terms and the preventive behavior of the individual mortgage borrowers. We find that time to default and time to prepayment are affected by several factors, such as the Loan-To-Value ratio (LTV), FICO score and unemployment rate. In addition, we find strong evidence that supports the existence of interdependence between the default and prepayment hazards through both the correlation of the unobserved heterogeneity terms and the preventive behavior of individual mortgage borrowers. We show that neglecting the interdependence through the preventive behavior of the individual mortgage borrowers can lead to biased estimates and misleading inference. [ABSTRACT FROM AUTHOR]

Assets or liabilities with embedded prepayment/extension options can be subject to behavioral risk, due to the unpredictable exercise strategy followed by the option holder who does not act purely on the strength of financial convenience. When seen from the viewpoint of the option seller, such behavior results in a lower option value and an additional source of uncertainty in future cash flows. In this paper, we propose a general framework to model behavioral risk by taking advantage of a full parallel with credit portfolio modeling and by combining the features of option-based and intensity models. Our approach is micro-structural, meaning that the aggregate prepayment rate derives from the sum of individual decisions. In principle, a detailed characterization of the behavior of a pool of investors can be performed depending on available data. A particular emphasis is placed on the precise definition of behavioral risk and on the modeling of nonmarket factors, which may contribute significantly to the variance of future cash flows. Finally, we discuss the calibration of a behavioral risk premium and the pricing of contracts with embedded options by introducing the concept of behavioral risk adjustment (VA), in line with the recent development of XVA methodology. [ABSTRACT FROM AUTHOR]