Abstract

This paper develops a computational model of residential mortgage prepayment over discrete time. The prepayment options at every payment date are embedded in the model by using real options approach and according to Chinese residential mortgage loan payment schedule. The computational approach of the model is shown in the paper. A forecasting for cash flow of the bank and a penalty strategy designed against prepayment behavior under the prepayment option are given in the paper as the applications of the model.

Full Text
Published version (Free)

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call