Mortgage Loan Portfolio Optimization Using Multi-Stage Stochastic Programming |
Kourosh Marjani Rasmussen, Jens Clausen
|
| Abstract | We consider the dynamics of the Danish mortgage loan system and
propose several models to reflect the choices of a mortgagor as well as
his attitude towards risk. The models are formulated as multi stage
stochastic integer programs, which are difficult to solve for more than
10 stages. Scenario reduction and LP relaxation are used to obtain
near optimal solutions for large problem instances. Our results show
that the standard Danish mortgagor should hold a more diversified
portfolio of mortgage loans, and that he should rebalance the portfolio
more frequently than current practice. |
| Keywords | Mortgage backed securities, Stochastic programming, Scenario reduction |
| Type | Journal paper [With referee] |
| Journal | Journal of economic dynamics and control |
| Year | 2007 Vol. 31 No. 3 pp. 742-766 |
| Electronic version(s) | [pdf] |
| BibTeX data | [bibtex] |
| IMM Group(s) | Operations Research |