Mathematical analysis of obstacle problems for pricing fixed-rate mortgages with prepayment and default options
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Mathematical analysis of obstacle problems for pricing fixed-rate mortgages with prepayment and default optionsDate
2018Citation
Calvo-Garrido, M. d. C., & Vázquez, C. (2018). Mathematical analysis of obstacle problems for pricing fixed-rate mortgages with prepayment and default options. Nonlinear Analysis: Real World Applications, 39, 157-165. https://doi.org/10.1016/j.nonrwa.2017.06.009
Abstract
[Abstract] In this paper, we address the mathematical analysis of a partial differential equation model for pricing fixed-rate mortgages with prepayment and default options, where the underlying stochastic factors are the house price and the interest rate. The mathematical model is posed in terms of a sequence of linked complementarity problems, one for each month of the loan life, associated with a uniformly parabolic operator. We study the existence of a strong solution to each one of the obstacle problems.
Keywords
Fixed-rate mortgages
Obstacle problem
Uniformly parabolic operator
Strong solution
Obstacle problem
Uniformly parabolic operator
Strong solution
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Creative Commons Attribution-NonCommercial-NoDerivs 4.0 International (CC-BY-NC-ND)