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Mortgages and Markov Chains: A Simplified Evaluation Model

Paul Zipkin
Management Science
Vol. 39, No. 6 (Jun., 1993), pp. 683-691
Published by: INFORMS
Stable URL: http://www.jstor.org/stable/2632546
Page Count: 9
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Mortgages and Markov Chains: A Simplified Evaluation Model
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Abstract

This paper has two purposes. The first is purely expository: to introduce stochastic interest-rate models and security-evaluation methods in a simple mathematical setting. Specifically, we assume the uncertainties in the model are represented by a discrete-time, finite-state Markov chain. Second, using this framework, we present a relatively simple model for the evaluation of mortgage-backed securities.

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