Factor HJM Yield Curve Modelling for Pricing of Danish Callable Mortgage Bonds
A distinguishing component of the mortgage bond market in Denmark is the option to prepay a loan before its maturity date. From the debtors perspective, this is often done with the purpose of refinancing to a lower lending rate. Thus, interest rate modelling becomes a natural part of the pricing process of Danish callable mortgage bonds. Today, yield curves are modelled and thought of differently