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 Least-Squares Monte Carlo Methods for Pricing Options Embedded in Mortgages Deng DING; Wenfei Wang; Li Wang 2016-03-01 Source Publication Journal of Applied Finance&Banking ISSN 1792-6580 Volume 6Issue:2Pages:1-20 Abstract This paper studies the pricing problems for options embedded in fixed rate mortgages by simulation. The least-squares Monte Carlo method, which was initiated by Longstaff and Schwartz (Rev. Financ.Stud. 14(1): 113-147, 2001), is applied to price the mortgage default and prepayment options in a financial environment with two stochastic factors: house price and short term interest rate. A series of numerical comparisons for presented methods with the PDE analytical approxi-mation method in (IAENG Int. J. Appl. Math. 39(1): 9, 2009) and the binomial tree method (BTM) (Decis. Econ. Financ. 35(2):171-202, 2012) are given. The simulation experiments show the efficiency of presented methods and some cross-validation of the obtained simulationresults are given. Keyword Least-squares Monte Carlo Method Options Embedded In Mortgages Optimal Stopping Dynamic Programming Language 英語English Fulltext Access Document Type Journal article Collection Faculty of Science and TechnologyDEPARTMENT OF MATHEMATICS Corresponding Author Wenfei Wang Affiliation Department of Mathematics Faculty of Science and Technology University of Macau, Macao, China First Author Affilication Faculty of Science and Technology Corresponding Author Affilication Faculty of Science and Technology Recommended CitationGB/T 7714 Deng DING,Wenfei Wang,Li Wang. Least-Squares Monte Carlo Methods for Pricing Options Embedded in Mortgages[J]. Journal of Applied Finance&Banking,2016,6(2):1-20. APA Deng DING,Wenfei Wang,&Li Wang.(2016).Least-Squares Monte Carlo Methods for Pricing Options Embedded in Mortgages.Journal of Applied Finance&Banking,6(2),1-20. MLA Deng DING,et al."Least-Squares Monte Carlo Methods for Pricing Options Embedded in Mortgages".Journal of Applied Finance&Banking 6.2(2016):1-20.
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