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Mortgages with non-random time-varying interest rates

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  • Laura Ziani

    (University of Udine)

Abstract

Here we introduce an “alternative” version of the standard traditional amortization plan, where sequences of non-random time-varying periodic interest rates replace the usual constant periodic effective rate, while preserving all the other classical rules. In particular, we use two of these sequences coherently generated by two different specific hyperbolic instantaneous intensity functions. We found that the two standard amortization plans obtained through this approach match perfectly with the two main amortization plans recently proposed under the simple capitalization law. This matching provides thus a clear link between the traditional scheme and the new wave of proposals in simple regime.

Suggested Citation

  • Laura Ziani, 2024. "Mortgages with non-random time-varying interest rates," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 47(2), pages 349-377, December.
  • Handle: RePEc:spr:decfin:v:47:y:2024:i:2:d:10.1007_s10203-023-00423-z
    DOI: 10.1007/s10203-023-00423-z
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    More about this item

    Keywords

    Amortization plan; Instantaneous interest rate; Simple capitalization law; Compound capitalization law;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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