A stochastic partial differential equation model for the pricing of mortgage-backed securities

STOCHASTIC PROCESSES AND THEIR APPLICATIONS

卷:128

Article

Ahmad, F.¹  Hambly, B. M.²  Ledger, S.³ 

[1] Lahore Univ Management Sci, Suleman Dawood Sch Business, Lahore, Pakistan

[2] Univ Oxford, Math Inst, Radcliffe Observ Quarter, Oxford OX2 6GG, England

[3] Univ Bristol, Heilbronn Inst, Howard House, Bristol BS8 1SN, Avon, England

关键词: Stochastic PDE;    Particle system;    Measure-valued process;    Mortgage-backed securities;   

DOI  :  10.1016/j.spa.2017.12.002

来源: Elsevier

【 摘 要 】

We develop a dynamic structural model for the wealth of individual mortgagors in a mortgage pool. We model the process of default and prepayment and, by taking a limit as the pool size goes to infinity, derive a stochastic partial differential equation (SPDE) which can be used to describe the evolution of the loss process from the pool. We prove existence and uniqueness of solutions to this SPDE and show how our model is able to capture, in a flexible way, the prices of credit risky tranches of mortgage-backed securities under different market conditions. (C) 2018 Elsevier B.V. All rights reserved.

【 授权许可】

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