Mortgages with non-random time-varying interest rates

Abstract

Here we introduce an “alternative” version of the standard traditional amortization plan, where sequences of non-random time-varying periodic interest rates replace the usual constant periodic effective rate, while preserving all the other classical rules. In particular, we use two of these sequences coherently generated by two different specific hyperbolic instantaneous intensity functions. We found that the two standard amortization plans obtained through this approach match perfectly with the two main amortization plans recently proposed under the simple capitalization law. This matching provides thus a clear link between the traditional scheme and the new wave of proposals in simple regime.