Match Funding Prepayable Assets with Callable Debts Using Simulated Prepayment Bounds
SHIJUN LIU
(Director at Nexus Investment Group, Inc., in Fremont, CA. sjliu@aol.com)
PETER A. MOZER
(Vice president and treasurer at Citibank, N.A. in New York, NY. peter.a.mozer@citicorp.com)
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Abstract
A majority of the loan products produced by modern financial intermediaries (e.g., banks) provide borrowers with an option to prepay loans. The institutions issuing these products typically retain much of this prepayment exposure on their balance sheets. This article develops and applies a general framework to match funding to the prepayment‐sensitivity of assets, in order to preserve spread and achieve a more stable return profile.
Citation
LIU, S. and MOZER, P.A. (2003), "Match Funding Prepayable Assets with Callable Debts Using Simulated Prepayment Bounds", Journal of Risk Finance, Vol. 4 No. 3, pp. 5-26. https://doi.org/10.1108/eb022963
Publisher
:MCB UP Ltd
Copyright © 2003, MCB UP Limited