When calculating the cost of entering into a credit transaction the predominant stochastic component is the expected loss. Often in the credit business the one-year probability of default of the liable counterpart is the only reliable parameter. We use this probability to calculating the exact...

"This paper explores the practice of mortgage refinancing in a dynamic competitive lending model with risky borrowers and costly default. We show that prepayment penalties improve welfare by ensuring longer-term lending contracts, which prevents the mortgage pools from becoming...