Mortgages and Markov Chains: A Simplified Evaluation Model
Management Science · 1993 · Volume 39 · Issue 6
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, we assume the uncertainties in the model are represented by a discrete-time, finite-state Markov chain. Second, using this framework, we present a relatively simple model for the evaluation of mortgage-backed securities.
Keywords
finance, stochastic models
Enable JavaScript for citation tools and additional paper interactions.