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ON THE EXISTENCE OF THE ENDOGENOUS MORTGAGE RATE PROCESS
Author(s) -
Goncharov Yevgeny
Publication year - 2012
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/j.1467-9965.2010.00470.x
Subject(s) - cash flow , economics , mortgage underwriting , shared appreciation mortgage , secondary mortgage market , econometrics , interest rate , floating interest rate , mortgage insurance , collateralized mortgage obligation , monetary economics , actuarial science , finance , casualty insurance , insurance policy
The mortgage rate is a major factor in the refinancing decision. The refinancing behavior influences cash flow and, therefore, mortgage price. The prices of mortgage instruments drives the mortgage rates. We consider a problem of the existence of a dynamic mortgage rate process which resolves this circular dependence. The existence is proved by constructing a solution using a newly proposed level set method.