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Paper / 2024SMQ / 41859552349088
Modeling and Replication of the Prepayment Option of Mortgages including Behavioral Uncertainty
Cornelis W. Oosterlee / Lech A. Grzelak / Leonardo Perotti
derivatives / interest ratesResource overview

Modeling and Replication of the Prepayment Option of Mortgages including Behavioral Uncertainty

Paper2024

by Cornelis W. Oosterlee, Lech A. Grzelak, Leonardo Perotti

Tags
derivativesinterest ratesoptimization

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Suggested foundations for rates and fixed income and options and derivatives pricing. Specialist prerequisites vary by paper.

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  1. The Bank Account, Short Rate, and the Fundamental Pricing Equation

    Understand discounting in a stochastic-rate model.

  2. DV01, Dollar Duration, and One-Factor Price Sensitivity

    Translate yield movements into first-order price risk.

  3. The Binomial Model

    Build replication and risk-neutral probabilities in a tractable model.

  4. Market Model and Risk-Neutral Valuation

    Distinguish pricing probabilities from physical forecasts.

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  1. Bootstrapping the Spot Curve from Market Instruments

    Build a consistent discount curve.

  2. The Vasicek Model: Mean Reversion, Affine Bond Prices, and the Gaussian Distribution

    Study a tractable mean-reverting rate model.

  3. The Black-Scholes PDE, Formula and Implied Volatility

    Connect the pricing equation, closed-form value and implied volatility.

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