Subprime mortgage funding and liquidity risk
Petersen, Mark Adam
Mulaudzi, Mmboniseni Phanuel
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In this article, we use actuarial methods to solve a nonlinear stochastic optimal liquidity risk management problem for subprime originators with deposit inflow rates and marketable securities allocation as controls. The main objective is to minimize liquidity risk in the form of funding and credit crunch risk in an incomplete market. In order to accomplish this, we construct a stochastic model that incorporates originator mortgage and deposit reference processes. Finally, numerical examples that illustrate the main modeling and optimization features of the article are provided.
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Petersen, Mark; Senosi, Mmamontsho Charlotte; Mukuddem-Petersen, Janine; Fouche, C.H. (Hindawi Publishing Corporation, 2008)The ongoing subprime mortgage crisis (SMC) and implementation of Basel II Capital Accord regulation have resulted in issues related to bank valuation and profitability becoming more topical. Profit is a major indicator of ...
Petersen, M.A.; Senosi, M.C.; Mukuddem-Petersen, J.; Mulaudzi, M.P.; Schoeman, I.M. (Hindawi, 2009)This contribution is the second in a series of papers on discrete-time modeling of bank capital regulation and its connection with the subprime mortgage crisis (SMC). The latter was caused by, amongst other things, the ...
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