On a class of adjustable rate mortgage loans subject to a strict balance principle

Bjarne Astrup Jensen
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Bjarne Astrup Jensen: Department of Finance, Copenhagen Business School, Postal: Department of Finance, Copenhagen Business School, Solbjerg Plads 3, A5, DK-2000 Frederiksberg, Denmark

No 2004-11, Working Papers from Copenhagen Business School, Department of Finance

Abstract: We describe the background and the basic funding mechanisms for the type of adjustable rate mortgage loans that were introduced in the Danish market in 1996. Each loan is funded separately by tap issuing pass-through mortgage bonds (“strict balance principle). The novelty is a funding mechanism that uses a roll-over strategy, where long term loans are funded by sequentially issuing short term pass-through bonds, and the first issuer of these loans obtained a patent on the funding principles in 1999. Publicly available descriptions of the principles leave an impression of very complicated numerical algorithms. The algorithms described here show that the essentials can be reduced to a “back of an envelope" complexity.

Keywords: Adjustable rate mortgages; balance principle; patent; yield curve riding (search for similar items in EconPapers)
JEL-codes: C63 G21 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2005-01-07
New Economics Papers: this item is included in nep-fin and nep-ure
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