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Author: | Zipkin, P. |
Title: | Mortgages and Markov chains: a simplified evaluation model |
Journal: | Management Science
1993 : JUN, VOL. 39:6, p. 683-691 |
Index terms: | FINANCE MARKOV CHAINS MORTGAGES |
Language: | eng |
Abstract: | This paper has two purposes. The first is purely expository: to introduce stochastic interest-rate models and security-evaluation methods in a simple mathematical setting. Specifically, the author assumes the uncertainties in the model are represented by a discrete-time , finite-state Markov chain. Second, using this framework, the author presents a relatively simple model for the evaluation of mortgage-backed securities. The factors which complicate the application of option-pricing methods to such securities are analysed. |
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