Effects of jump-diffusion models for the house price dynamics in the pricing of fixed-rate mortgages, insurance and coinsurance

María del Carmen Calvo-Garrido and Carlos Vázquez

Applied Mathematics and Computation, 2015, vol. 271, issue C, 730-742

Abstract: In the pricing of fixed rate mortgages with prepayment and default options, we introduce jump-diffusion models for the house price evolution. These models take into account sudden changes in the price (jumps) during bubbles and crisis situations in real estate markets. After posing the models based on partial-integro differential equations (PIDE) problems for the contract, insurance and the fraction of the total loss not covered by the insurance (coinsurance), we propose appropriate numerical methods to solve them.

Keywords: Fixed-rate mortgages; Jump-diffusion models; Option pricing; Complementarity problem; Numerical methods; Augmented Lagrangian Active Set formulation (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0096300315012898
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:apmaco:v:271:y:2015:i:c:p:730-742

DOI: 10.1016/j.amc.2015.09.051

Access Statistics for this article

Applied Mathematics and Computation is currently edited by Theodore Simos

More articles in Applied Mathematics and Computation from Elsevier
Bibliographic data for series maintained by Catherine Liu ().