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Refinancing Mortgages in Switzerland

This paper presents a multistage stochastic programming model for refinancing mortgages with non-contractual maturity under liquidity restrictions in the market. An extension to the management of other products such as savings accounts is straightforward. The evolution of interest rates is modelled by principal components for short-term and a two-factor mean reversion model with long rate and spread for long-term planning. Barycentric approximation provides tight lower and upper bounds for the original problem with relative discretization errors in the order of one per cent.
   
type book chapter (English)
   
keywords Multistage Stochastic Programming, Asset & Liability Management, Non-Maturing Assets & Liabilities, Barycentric Approximation
   
book title Applications of Stochastic Programming
date of appearance 2005
publisher SIAM Society for Industrial and Applied Mathematics (Philadelphia)
series title MPS-SIAM Book Series on Optimization (5)
ISBN 0-89871-555-5
page(s) 445-469
citation Frauendorfer, K., & Schürle, M. (2005). Refinancing Mortgages in Switzerland. In Applications of Stochastic Programming (pp. 445-469). Philadelphia: SIAM Society for Industrial and Applied Mathematics. - ISBN 0-89871-555-5.