PAPIN, TIMOTHEE; TURINICI, GABRIEL - In: International Journal of Theoretical and Applied … 17 (2014) 04, pp. 1450028-1
We investigate in this paper a perpetual prepayment option related to a corporate loan. The short interest rate and … funding costs of the bank is introduced and modeled as a continuous time discrete state Markov chain. The prepayment option … examples are considered. It is found that the impact of the prepayment option on the loan value is not to be neglected and …