A PDE-Based Approach for Pricing Mortgage-Backed Securities

Marco Papi () and Maya Briani ()
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Marco Papi: Università CBM, Engineering School
Maya Briani: CNR, Istituto Motori

Chapter Chapter 10 in Advanced Mathematical Methods for Finance, 2011, pp 257-291 from Springer

Abstract: Abstract In this paper we derive a new equilibrium model for pricing Mortgage-Backed Securities. We prove that the price can be represented as the solution of a degenerate parabolic semilinear equation, and we state existence, uniqueness, and regularity results in the framework of viscosity solutions. These results allow a complete justification of the model. We also obtain a convergence result of a numerical scheme to the solution of the valuation equation.

Keywords: Degenerate parabolic equations; Viscosity solutions; Derivative pricing; Mortgages; Numerical methods; 35K65; 65M06; 91G20; 91G80 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-642-18412-3_10

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DOI: 10.1007/978-3-642-18412-3_10

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