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Flexible-Rate Mortgages

15 Pages Posted: 27 Apr 2006  

Andrea Roncoroni

ESSEC Business School

Alessandro Moro

Morgan Stanley

Abstract

We propose a model for the endogenous determination of an optimal refinancing policy for mortgage loans under limited refinancing opportunities. Transaction costs are also included in the analysis. A detailed examination of the optimal exercise distributions sheds light on the impact of contract features on the average prepayment behavior in mortgage-backed securities.

Keywords: Mortgages, Interest rates, Multiple optimal stopping times, Dynamic programming

JEL Classification: C31, E43, G11

Suggested Citation

Roncoroni, Andrea and Moro, Alessandro, Flexible-Rate Mortgages. International Journal of Business, Vol. 11, No. 2, 2006. Available at SSRN: https://ssrn.com/abstract=898416

Andrea Roncoroni (Contact Author)

ESSEC Business School ( email )

Avenue Bernard Hirsch BP 50105
Cergy-Pontoise, 95021
France
+33 (0)1 34 43 32 39 (Phone)
+33 (0)1 34 43 30 01 (Fax)

HOME PAGE: http://www45.essec.edu/faculty/andrea-roncoroni

Alessandro Moro

Morgan Stanley ( email )

Cabot Square, Canary Whart
London, E14 4QW
United Kingdom

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