Abstract:
The aim of the project is to create a dynamical structural model of a mortgage portfolio consisting of multiple tranches. A default of a
loan will be driven by a sum of three factors: an overall one, a tranche specific one and an individual one. Analogously, a loss (given default)
of individual mortgages will be driven by a sum of three factors (possibly standing for a collateral value). The model will allow for endogenous
prepayments and will take finite-sample properties of tranches into account. A time and space interdependence of the (common and tranche-
specific) factors and their possible dependence on an economic environment will be studied; a natural non-linear dynamics of the factors will
be taken into account.