The Cost of Delay in a Mortgage/Credit Loan Portfolio
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Jiwook Jang
Using an actuarial model, we examine the cost of delay in mortgage/credit loan payments. It is assumed that the default arrival process follows the Poisson process and the loss sizes are assumed to be independent and an identical truncated exponential. We also assume that the delay between default occurrence and partially (or fully) recovered payment is an independent identical truncated exponential random variable. For the recovery rate random variable, we simply use its expectation. Using the relationship between the shot noise process and accumulated/discounted aggregate losses process and applying the piecewise deterministic Markov processes theory, we obtain the explicit expressions for the expected value of losses and the expected value of part (or whole) of the loan recovered with the delay. Based on these moments, we define and predict the cost of delay in a mortgage/credit loan portfolio and their numerical examples are provided.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Articles in the same Issue
- Featured Article
- Comparison between Financial Theory and Cooperative Game Theory in Risk Capital Allocation
- The Dynamic Interactions between Risk Management, Capital Management, and Financial Management in the U.S. Property/Liability Insurance Industry
- The Effects of Economies of Scale and Diversification on the Cost Structure of the Malaysian Non-life Insurance Industry
- Effects of Disability-Based Underwriting Prohibitions on the Labor Market
- The Cost of Delay in a Mortgage/Credit Loan Portfolio
- Commentary Piece
- Some Comments on Catastrophe Risk Management and Insurance
Articles in the same Issue
- Featured Article
- Comparison between Financial Theory and Cooperative Game Theory in Risk Capital Allocation
- The Dynamic Interactions between Risk Management, Capital Management, and Financial Management in the U.S. Property/Liability Insurance Industry
- The Effects of Economies of Scale and Diversification on the Cost Structure of the Malaysian Non-life Insurance Industry
- Effects of Disability-Based Underwriting Prohibitions on the Labor Market
- The Cost of Delay in a Mortgage/Credit Loan Portfolio
- Commentary Piece
- Some Comments on Catastrophe Risk Management and Insurance
