infonet-economy

This paper presents a multistage stochastic programming model for refinancing mortgages with non-contractual maturity under liquidity restrictions in the market. An extension to the management of other products such as savings accounts is straightforward. The evolution of interest rates is modelled by principal components for short-term and a two-factor mean reversion model with long rate and spread for long-term planning. Barycentric approximation provides tight lower and upper bounds for the original problem with relative discretization errors in the order of one per cent.