Closed‐Form Mortgage Valuation Using Reduced‐Form Model
提出一种简化形式模型，无需设定边界条件即可得到抵押贷款的封闭式估值公式，能处理多维相关状态变量，帮助投资组合经理进行优化和对冲分析。
Valuing mortgage‐related securities is more complicated than valuing regular defaultable claims due to the borrower's prepayment behavior as well as the possibility of default. Some researchers use a structural‐form model to obtain the closed‐form formulas for the mortgage value. With this method, however, it is difficult to identify the critical region of early exercise. As an alternative, the reduced‐form model developed in this article is able to value the mortgage without setting boundary conditions, and it can thereby accurately handle the multidimensional space of correlated state variables. The purpose of this article is to derive a closed‐form solution of the mortgage valuation equation under a general reduced‐form model that embeds relevant economic variables. This new approach enables portfolio managers to undertake sophisticated portfolio optimization and hedging analyses. An implementation procedure for the model is also provided to demonstrate how the valuation framework can be utilized in practical applications.