IDEAS home Printed from https://ideas.repec.org/a/bla/stanee/v61y2007i1p137-155.html
   My bibliography  Save this article

Optimal prepayment of Dutch mortgages

Author

Listed:
  • Bart H. M. Kuijpers
  • Peter C. Schotman

Abstract

Valuation of the prepayment option in Dutch mortgages is complicated. In the Netherlands, mortgagors are not allowed to prepay the full mortgage loan without a compensating penalty. Only a limited amount of the initial mortgage loan can be prepaid penalty‐free. We introduce a general model formulation for the valuation of limited callable mortgages, based on binomial trees. This model can be used for determining both the optimal prepayment strategy and the value of embedded prepayment options. For some mortgage types the prepayment option can be valued exactly, whereas other types require approximative methods for efficient valuation. The heuristic we propose here determines the prepayment option value efficiently and accurately for general mortgage types.

Suggested Citation

  • Bart H. M. Kuijpers & Peter C. Schotman, 2007. "Optimal prepayment of Dutch mortgages," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 61(1), pages 137-155, February.
    • Handle: RePEc:bla:stanee:v:61:y:2007:i:1:p:137-155
    DOI: 10.1111/j.1467-9574.2007.00349.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-9574.2007.00349.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-9574.2007.00349.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stefan Groot & Arjan Lejour, 2017. "Tax arbitrage incentives for mortgage prepayment behavior: Evidence from Dutch micro data," CPB Discussion Paper 350.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Emanuele Casamassima & Lech A. Grzelak & Frank A. Mulder & Cornelis W. Oosterlee, 2021. "Pricing and Hedging Prepayment Risk in a Mortgage Portfolio," Papers 2109.14977, arXiv.org, revised Oct 2021.
    3. Stefan Groot & Arjan Lejour, 2017. "Tax arbitrage incentives for mortgage prepayment behavior: Evidence from Dutch micro data," CPB Discussion Paper 350, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Liang, Te-Hsin & Lin, Jian-Bang, 2014. "A two-stage segment and prediction model for mortgage prepayment prediction and management," International Journal of Forecasting, Elsevier, vol. 30(2), pages 328-343.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:stanee:v:61:y:2007:i:1:p:137-155. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0039-0402 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.