Show simple item record

dc.contributor.authorPapin, Timothée
dc.contributor.authorTurinici, Gabriel
dc.date.accessioned2014-05-28T14:13:47Z
dc.date.available2014-05-28T14:13:47Z
dc.date.issued2014
dc.identifier.issn0219-0249
dc.identifier.urihttps://basepub.dauphine.fr/handle/123456789/13377
dc.language.isoenen
dc.subjectloan prepayment
dc.subjectAmerican option
dc.subjectprepayment option
dc.subjectfunding costs
dc.subjectmortgage option
dc.subjectperpetual option
dc.subjectvariational inequality
dc.subjectoption pricing
dc.subjectCIR process
dc.subjectswitching regimes
dc.subjectliquidity regime
dc.subjectMarkov modulated dynamics
dc.subject.ddc332en
dc.subject.classificationjelG12en
dc.titlePrepayment option of a perpetual corporate loan: the impact of the funding costs
dc.typeArticle accepté pour publication ou publié
dc.description.abstractenWe investigate in this paper a perpetual prepayment option related to a corporate loan. The short interest rate and default intensity of the firm are supposed to follow CIR processes. A liquidity term that represents the funding costs of the bank is introduced and modeled as a continuous time discrete state Markov chain. The prepayment option needs specific attention as the payoff itself is a derivative product and thus an implicit function of the parameters of the problem and of the dynamics. We prove verification results that allows to certify the geometry of the exercise region and compute the price of the option. We show moreover that the price is the solution of a constrained minimization problem and propose a numerical algorithm building on this result. The algorithm is implemented in a two-dimensional code and several examples are considered. It is found that the impact of the prepayment option on the loan value is not to be neglected and should be used to assess the risks related to client prepayment. Moreover the Markov chain liquidity model is seen to describe more accurately clients' prepayment behavior than a model with constant liquidity.
dc.relation.isversionofjnlnameInternational Journal of Theoretical and Applied Finance
dc.relation.isversionofjnlvol17
dc.relation.isversionofjnlissue4
dc.relation.isversionofjnldate2014
dc.relation.isversionofdoihttp://dx.doi.org/10.1142/S0219024914500289
dc.relation.isversionofjnlpublisherWorld Scientific
dc.subject.ddclabelEconomie financièreen
dc.description.submittednonen
dc.description.ssrncandidatenon
dc.description.halcandidateoui
dc.description.readershiprecherche
dc.description.audienceInternational
dc.relation.Isversionofjnlpeerreviewedoui
dc.date.updated2017-02-20T18:24:49Z


Files in this item

FilesSizeFormatView

There are no files associated with this item.

This item appears in the following Collection(s)

Show simple item record