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When to Refinance Mortgage Loans in a Stochastic Interest Rate Environment

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Figure

Fig. 1.The frequency distribution over 240 months’ duration by 10000times of simulations with matching the principal payment method.
Fig. 2.The frequency distribution over 240 months’ duration by 10000times of simulations with matching the payment of principal and interestmethod.
Fig. 3. instantaneous rates, where r 0the term’drift’ represents the term� ( −θ ) e− k t +θ, ’variance’ represents σt0e− k ( t −s ) d Wsand ’interest rates’ are the simulated spot r 0 =0.12, k =0.1 and σ =0.001.
Fig. 6.The frequency distribution at different values of σ , when θ =0.05, =0.1 and r 0 =0.05.

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