Related papers: Mortgage Contracts and Underwater Default

This paper considers a mortgage contract where the borrower pays a fixed mortgage rate and has the choice of making prepayment. Assume the market interest follows the CIR model, a free boundary problem is formulated. Here we focus on the…

This paper discusses the valuation of credit default swaps, where default is announced when the reference asset price has gone below certain level from the last record maximum, also known as the high-water mark or drawdown. We assume that…

Mortgage prepayments play a crucial role in the pricing and hedging of mortgage backed securities. An important feature of mortgage prepayment modeling is burnout; as time goes on those borrowers who have the greatest tendency to refinance…

Mortgage default prediction is a core task in financial risk management, and machine learning models are increasingly used to estimate default probabilities and provide interpretable signals for downstream decisions. In real-world mortgage…

Mortgage default rates, on the one hand, serve as a measure of economic health to support decision-making by insurance companies, and on the other hand, is a key risk factor in the asset-liability management (ALM) practice, as mortgage…

A model is developed to assess the profitability of loans or mortgages with a specified repayment schedule. Financial institutions face two competing risks: default and prepayment, both influenced by the stochastic evolution of credit…

This paper studies the valuation of a class of default swaps with the embedded option to switch to a different premium and notional principal anytime prior to a credit event. These are early exercisable contracts that give the protection…

In this paper we present a Bayesian competing risk proportional hazards model to describe mortgage defaults and prepayments. We develop Bayesian inference for the model using Markov chain Monte Carlo methods. Implementation of the model is…

Loan seasoning and inefficient consumer interest rate refinance behavior are well-known for mortgages. Consumer automobile loans, which are collateralized loans on a rapidly depreciating asset, have attracted less attention, however. We…

We study how governments promote social welfare through the design of contracting environments. We model the regulation of contracting as default delegation: the government chooses a delegation set of contract terms it is willing to…

This paper proposes a novel continuous-time dynamic contract framework that has a risk-limiting capability. If a principal and an agent enter into such a contract, the principal can optimally manage its performance and risk with a guarantee…

We consider the optimal investment problem when the traded asset may default, causing a jump in its price. For an investor with constant absolute risk aversion, we compute indifference prices for defaultable bonds, as well as a price for…

In this paper, we propose a clearing model for prices in a financial markets due to margin calls on short sold assets. In doing so, we construct an explicit formulation for the prices that would result immediately following asset purchases…

Prepayment risk embedded in fixed-rate mortgages forms a significant fraction of a financial institution's exposure. The embedded prepayment option bears the same interest rate risk as an exotic interest rate swap with a suitable stochastic…

Motivated by applications where a system must remain operational via continual procurement of contracts, we study two online contract selection problems under uncertain prices. At each time step, a price drawn from a known distribution is…

We propose a model in which, in exchange to the payment of a fixed transaction cost, an insurance company can choose the retention level as well as the time at which subscribing a perpetual reinsurance contract. The surplus process of the…

We build a general model for pricing defaultable claims. In addition to the usual absence of arbitrage assumption, we assume that one defaultable asset (at least) looses value when the default occurs. We prove that under this assumption, in…

Debt recycling is an aggressive equity extraction strategy that potentially permits faster repayment of a mortgage. While equity progressively builds up as the mortgage is repaid monthly, mortgage holders may obtain another loan they could…

In this article, we study the problem of pricing defaultable bond with discrete default intensity and barrier under constant risk free short rate using higher order binary options and their integrals. In our credit risk model, the risk free…

In the paper we study dynamics of the arbitrage prices of credit default swaps within a hazard process model of credit risk. We derive these dynamics without postulating that the immersion property is satisfied between some relevant…