Modeling Mortgages with Prepayment Penalties

作者：Hung Chih Hsing; Chen Ming Chi; Tzang Shyh Weir^*

来源：Emerging Markets Finance and Trade, 2012, 48: 157-174.

DOI：10.2753/REE1540-496X4805S310

• CIR model
• Crank-Nicolson method
• prepayment penalties
• yield maintenance agreement

This paper uses a numerical simulation based on the Crank-Nicolson method to estimate the value of a fixed-rate mortgage (FRM) with embedded prepayment and non-defaultable options. We find that the value of the FRM will increase when interest rates decrease, increasing the incentive for borrowers to prepay the mortgage. This paper presents simulated results of prepayment penalties that may help financial institutions enact specific yield maintenance agreements and that may aid financial regulators in providing additional safety for financial lenders and borrowers.

• 出版日期2012-10
• 单位中山大学