Mathematical analysis of obstacle problems for pricing fixed-rate mortgages with prepayment and default options

Calvo-Garrido, María-del-Carmen; Vázquez, Carlos

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http://hdl.handle.net/2183/35193

Mathematical analysis of obstacle problems for pricing fixed-rate mortgages with prepayment and default options

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Calvo_Garrido_MC_2018_Mathematical_analysis_of_obstacle_problems.pdf (451.61 KB)

Identifiers

URI: http://hdl.handle.net/2183/35193

DOI: https://doi.org/10.1016/j.nonrwa.2017.06.009

Publication date

2018

Authors

Calvo-Garrido, María-del-Carmen

Vázquez, Carlos

Bibliographic citation

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.