Related papers: Mortgage Contracts and Underwater Default
Conventional models of matching markets assume that monetary transfers can clear markets by compensating for utility differentials. However, empirical patterns show that such transfers often fail to close structural preference gaps. This…
In many search markets, advance interim contracts include an explicit right to renege, granting one party the option to switch to more attractive matches that emerge later in the search process. This paper studies the design and welfare…
Prepayment risk embedded in fixed-rate mortgages forms a significant fraction of a financial institution's exposure, and it receives particular attention because of the magnitude of the underlying market. The embedded prepayment option…
We study an optimal stopping problem with an unbounded, time-dependent and discontinuous reward function. This problem is motivated by the pricing of a variable annuity contract with guaranteed minimum maturity benefit, under the assumption…
In this work we consider three problems of the standard market approach to pricing of credit index options: the definition of the index spread is not valid in general, the usually considered payoff leads to a pricing which is not always…
Demand response provides utilities with a mechanism to share with end users the stochasticity resulting from the use of renewable sources. Pricing is accordingly used to reflect energy availability, to allocate such a limited resource to…
In strategic games such as the prisoner's dilemma, allowing players to make binding offers of utility transfers before play has been shown to alter incentives and potentially support cooperative outcomes. These preplay exchange mechanisms…
Financial options are contracts that specify the right to buy or sell an underlying asset at a strike price by an expiration date. Standard exchanges offer options of predetermined strike values and trade options of different strikes…
We study pricing and superhedging strategies for game options in an imperfect market with default. We extend the results obtained by Kifer in \cite{Kifer} in the case of a perfect market model to the case of an imperfect market with…
In this paper we provide a theoretical analysis of Variable Annuities with a focus on the holder's right to an early termination of the contract. We obtain a rigorous pricing formula and the optimal exercise boundary for the surrender…
This article examines the economic effects of an increase in the duration of home loans on households, focusing on the French real estate market. It highlights trends in the property market, existing loan systems in other countries (such as…
In this article, we develop a model for the evolution of real estate prices. A wide range of inputs, including stochastic interest rates and changing demands for the asset, are considered. Maximizing their expected utility, home owners make…
Understanding mortgage prepayment is crucial for any financial institution providing mortgages, and it is important for hedging the risk resulting from such unexpected cash flows. Here, in the setting of a Dutch mortgage provider, we…
Credit Valuation Adjustment captures the difference in the value of derivative contracts when the counterparty default probability is taken into account. However, in the context of a network of contracts, the default probability of a direct…
Despite the success of demand response programs in retail electricity markets in reducing average consumption, the random responsiveness of consumers to price event makes their efficiency questionable to achieve the flexibility needed for…
In this paper we analyze the resilience of a network of banks to joint price fluctuations of the external assets in which they have shared exposures, and evaluate the worst-case effects of the possible default contagion. Indeed, when the…
We depart from the usual methods for pricing contracts with the counterparty credit risk found in most of the existing literature. In effect, typically, these models do not account for either systemic effects or at-first-default contagion…
We consider a seller who offers services to a buyer with multi-unit demand. Prior to the realization of demand, the buyer receives a noisy signal of their future demand, and the seller can design contracts based on the reported value of…
Algorithmic lending has transformed the consumer credit landscape, with complex machine learning models now commonly used to make or assist underwriting decisions. To comply with fair lending laws, these algorithms typically exclude legally…
We study pricing and (super)hedging for American options in an imperfect market model with default, where the imperfections are taken into account via the nonlinearity of the wealth dynamics. The payoff is given by an RCLL adapted process…