Hung, Chih-Hsing; Chen, Ming-Chi; Tzang, Shyh-Weir - In: Emerging Markets Finance and Trade 48 (2012) S3, pp. 157-174
This paper uses a numerical simulation based on the Crank-Nicolson method to estimate the value of a fixed-rate mortgage (FRM) with embedded prepayment and non-defaultable options. We find that the value of the FRM will increase when interest rates decrease, increasing the incentive for...