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The effective maturity profile of a mortgage portfolio: determining the effective maturity of a mortgage over its complete economic life time by taking into account all contractual repayments and non-contractual prepayments

Slot, X. (2013) The effective maturity profile of a mortgage portfolio: determining the effective maturity of a mortgage over its complete economic life time by taking into account all contractual repayments and non-contractual prepayments.

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Abstract:This thesis is written in response of a request by the ABN AMRO Hypotheken Groep. In terms of financial risks, liquidity risk was considered as one of the least significant types before the financial crisis; focus was mainly on the interest rate risk. However, liquidity risk rose sharply since the financial crisis. This (increase in) liquidity risk has an impact on, among other things, AAHG’s funding strategy, total costs of risk, the bank’s capital buffer and the risk premium that is to be included in the mortgage client rates. A mismatch in liquidity between a bank’s assets and liabilities, i.e. a maturity mismatch, is one of the most important components of liquidity risk. With that in mind, gaining (better) insight into the effective maturity (Dutch: liquiditeitstypische looptijd) is of great importance. Based on the above the main research objective of this thesis is as follows: Determining the effective maturity of a mortgage over its complete economic life time by taking into account all contractual repayments and non-contractual (i.e. behavioural) prepayments. By analysing an historical data set which holds data on the (p)repayments made in the last six years it was found that the effective maturity is affected by so called liquiditeitstypische prepayments which include relocations, complete prepayments and curtailments. The main research objective is achieved by computing the future contractual repayments and the liquiditeitstypische prepayments for the current portfolio. The first could be determined using the known parameters of the current loan parts. An Excel macro was developed to compute the future liquiditeitstypische prepayments. By combining these payments, the outstanding balance of the current portfolio is as in the figure below. The weighted average effective maturity at origination is XX respectively XX months for the ABN AMRO and Florius label. The used queries and macros can easily be reapplied in future analyses.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Industrial Engineering and Management MSc (60029)
Link to this item:http://purl.utwente.nl/essays/63870
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