Modelling Prepayment and Default under Changing Credit Market Conditions for a Net Present Value Analysis
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arXiv
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| Main Authors: | , , |
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| Format: | Preprint |
| Published: |
2025
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| _version_ | 1866911101360275456 |
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| author | Lorenzo, Quirini Luigi, Vannucci Giovanni, Quirini |
| author_facet | Lorenzo, Quirini Luigi, Vannucci Giovanni, Quirini |
| contents | A model is developed to assess the profitability of loans or mortgages with a specified repayment schedule. Financial institutions face two competing risks: default and prepayment, both influenced by the stochastic evolution of credit market conditions. This study focuses on the Random Net Present Value (RNPV) as a key performance metric. The analysis evaluates the mean and variance of the RNPV at both the individual loan level and the portfolio level, within a unified framework that accounts for borrower behavior and prevailing credit market dynamics. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2508_07774 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Modelling Prepayment and Default under Changing Credit Market Conditions for a Net Present Value Analysis Lorenzo, Quirini Luigi, Vannucci Giovanni, Quirini Risk Management A model is developed to assess the profitability of loans or mortgages with a specified repayment schedule. Financial institutions face two competing risks: default and prepayment, both influenced by the stochastic evolution of credit market conditions. This study focuses on the Random Net Present Value (RNPV) as a key performance metric. The analysis evaluates the mean and variance of the RNPV at both the individual loan level and the portfolio level, within a unified framework that accounts for borrower behavior and prevailing credit market dynamics. |
| title | Modelling Prepayment and Default under Changing Credit Market Conditions for a Net Present Value Analysis |
| topic | Risk Management |
| url | https://arxiv.org/abs/2508.07774 |