Stochastic control of credit default insurance for subprime residential mortgage-backed securities

Petersen M.A.; Mulaudzi M.P.; Mukuddem-Petersen J.; Schoeman I.M.; De Waal B.

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dc.contributor.author	Petersen M.A.	en
dc.contributor.author	Mulaudzi M.P.	en
dc.contributor.author	Mukuddem-Petersen J.	en
dc.contributor.author	Schoeman I.M.	en
dc.contributor.author	De Waal B.	en
dc.date.accessioned	2012-11-01T16:31:41Z
dc.date.available	2012-11-01T16:31:41Z
dc.date.issued	2012	en
dc.identifier.citation	Optimal Control Applications and Methods	en
dc.identifier.citation	33	en
dc.identifier.citation	4	en
dc.identifier.issn	1432087	en
dc.identifier.other	10.1002/oca.1001	en
dc.identifier.uri	http://hdl.handle.net/10500/7603
dc.description.abstract	Subprime residential mortgage securitization and its associated risks have been a major topic of discussion since the onset of the mortgage crisis in July 2007. In this paper, we provide a stochastic dynamic model for investing bank profit under mortgage securitization. In addition, aspects of this model are illustrated by means of a numerical example. In addition, we solve a stochastic optimal credit default insurance problem that has the cash outflow rate for satisfying depositor obligations, the investment in structured mortgage products and credit default insurance as controls. As far as the latter is concerned, we compute credit default swap and accrued premiums by considering the credit rating of structured mortgage products such as residential mortgage-backed securities and collateralized debt obligations. Copyright © 2011 John Wiley & Sons, Ltd. Copyright © 2011 John Wiley & Sons, Ltd.	en
dc.language.iso	en	en
dc.subject	collateralized debt obligation (CDO); counterparty risk; credit default swaps (CDSs); credit risk; liquidity risk; residential mortgage loan; residential mortgage-backed security (RMBS); special purpose vehicle (SPV); subprime investing bank; subprime mortgage crisis; tranching risk Collateralized debt obligations; Credit default Swap; Credit risks; Liquidity risk; Mortgage loans; residential mortgage-backed security (RMBS); special purpose vehicle (SPV); subprime investing bank; subprime mortgage crisis; Insurance; Profitability; Risk assessment; Stochastic systems	en
dc.title	Stochastic control of credit default insurance for subprime residential mortgage-backed securities	en
dc.type	Article	en