| Article ID: | iaor200973038 |
| Country: | Germany |
| Volume: | 4 |
| Issue: | 1 |
| Start Page Number: | 97 |
| End Page Number: | 115 |
| Publication Date: | Dec 2009 |
| Journal: | Optimization Letters |
| Authors: | Mukuddem-Petersen J, Mulaudzi M P, Petersen Mark Adam, Schoeman I M |
| Keywords: | mortgages |
We analyze the process of mortgage loan securitization that has been a root cause of the current subprime mortgage crisis (SMC). In particular, we solve an optimal securitization problem for banks that has the cash outflow rate for financing a portfolio of mortgage-backed securities (MBSs) and the bank's investment in MBSs as controls. In our case, the associated Hamilton–Jacobi–Bellman equation (HJBE) has a smooth solution when the optimal controls are computed via a power utility function. Finally, we analyze this optimization problem and its connections with the SMC.