User Account

All Pages

economics, Mathematics

Assignment Help:
A mortgage lender seeks to maximize the expected value of its portfolio. The portfolio, of course, is the
sum of all of the mortgages in it, so no generality is lost by examining the case of one loan:
E[port] = (1-p).B +p.(V-L)
where:
_ E[port] is the expected value of the portfolio
_ p is the probability of foreclosure
_ B is the principal balance
_ V is the sale price at foreclosure
_ L is the legal fees incurred by foreclosure
Assume that the borrower’s probability of foreclosure is an increasing function of his/her ”balance-to value ratio” (i.e. B/V):
P ? p (B/V) P’>0
In other words, borrowers who are deeper underwater are more likely to enter the foreclosure process. In such cases, reducing principal balances would reduce foreclosure-related losses (by reducing the probability of foreclosure). On the other hand, principal balance reductions are a direct loss for the lender.
1. Derive the marginal benefit of reducing principal balances.
2. Derive the marginal cost of reducing principal balances.
3. What is the necessary condition for maximizing E[port] with respect to the principal balance?
4. What is the sufficient condition for maximizing E[port]?
5. How does the marginal benefit curve shift in response to an increase in L?
6. How does the marginal cost curve shift in response to an increase in L?
7. How does the optimal principal balance change when L increases?

Related Discussions:- economics

Complex number, a ,b,c are complex numbers such that a/1-b=b/1-c=c-1-a=k.fi...

a ,b,c are complex numbers such that a/1-b=b/1-c=c-1-a=k.find the value of k

What are real numbers, The hole set of irrational and rational numbers is t...

The hole set of irrational and rational numbers is the set of real numbers and is representing by R. Thus, the real numbers can also be describe in terms of position of a point on

Do yall, do yall help kids in 6th grade

do yall help kids in 6th grade

Division, 32/562

32/562

Integers satisfy the inequality, How many integers satisfy the inequality |...

How many integers satisfy the inequality |10(x+1)/x^2+2x+3|=1? Solution) first thing thats not an inequality, and second thing its very easy if thats the question. the LHS = |10/

#title. Dividend on shares, calculate

calculate

Matrices, how solve the inverse matrices using the matlab?

how solve the inverse matrices using the matlab?

Logarithmic function:solve for x: 4 log x2, Solve for x: 4 log x = log (15 ...

Solve for x: 4 log x = log (15 x 2 + 16) Solution:              x 4 - 15 x 2 - 16 = 0                (x 2 + 1)(x 2 - 16) = 0                x = ± 4   But log x is

What is the sale price of the printer, A printer which sells for $190 is on...

A printer which sells for $190 is on sale for 20% off. What is the sale price of the printer? The printer is 20% off. That means that it is 80% of its original price (100% - 2

A graph with a positive slope, A graph with a positive slope shows that the...

A graph with a positive slope shows that the variables depicted on the axes goes in the similar directions.

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd