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Endogenous current coupons.
- Source :
- Finance & Stochastics; Oct2017, Vol. 21 Issue 4, p1027-1071, 45p
- Publication Year :
- 2017
-
Abstract
- We consider the problem of identifying current coupons for agency-backed to-be-announced pools of residential mortgages. Such coupons, or mortgage origination rates, ensure par-valued pools. In a doubly stochastic reduced form model which allows prepayment intensities to depend upon both current and origination mortgage rates, as well as underlying investment factors, we identify the current coupon as a solution to a degenerate elliptic, nonlinear fixed point problem. Using Schaefer's theorem, we prove existence of a current coupon. We also provide an explicit approximation to the fixed point, valid for compact perturbations off a baseline factor-based intensity model. A numerical example is provided which shows that the approximation performs well in estimating the current coupon. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 09492984
- Volume :
- 21
- Issue :
- 4
- Database :
- Complementary Index
- Journal :
- Finance & Stochastics
- Publication Type :
- Academic Journal
- Accession number :
- 125349750
- Full Text :
- https://doi.org/10.1007/s00780-017-0340-8