{"id":{"repo_id":"byu","oai_identifier":"oai:scholarsarchive.byu.edu:etd-2382"},"canonical_url":"https://search.dev.ndltd.org/etd/byu/oai:scholarsarchive.byu.edu:etd-2382","repository":{"repo_id":"byu","name":"Brigham Young University","base_url":"https://scholarsarchive.byu.edu/do/oai/"},"display":{"title":"Optimal Interest Rate for a Borrower with Estimated Default and Prepayment Risk","abstract":"Today's mortgage industry is constantly changing, with adjustable rate mortgages (ARM), loans originated to the so-called \"subprime\" market, and volatile interest rates. Amid the changes and controversy, lenders continue to originate loans because the interest paid over the loan lifetime is profitable. Measuring the profitability of those loans, along with return on investment to the lender is assessed using Actuarial Present Value (APV), which incorporates the uncertainty that exists in the mortgage industry today, with many loans defaulting and prepaying. The hazard function, or instantaneous failure rate, is used as a measure of probability of failure to make a payment. Using a logit model, the default and prepayment risks are estimated as a function of interest rate. The \"optimal\" interest rate can be found where the profitability is maximized to the lender.","abstract_html":"Today's mortgage industry is constantly changing, with adjustable rate mortgages (ARM), loans originated to the so-called "subprime" market, and volatile interest rates. Amid the changes and controversy, lenders continue to originate loans because the interest paid over the loan lifetime is profitable. Measuring the profitability of those loans, along with return on investment to the lender is assessed using Actuarial Present Value (APV), which incorporates the uncertainty that exists in the mortgage industry today, with many loans defaulting and prepaying. The hazard function, or instantaneous failure rate, is used as a measure of probability of failure to make a payment. Using a logit model, the default and prepayment risks are estimated as a function of interest rate. The "optimal" interest rate can be found where the profitability is maximized to the lender.","abstract_has_math":false,"creators":["Howard, Scott T."],"institution":"Brigham Young University - Provo","degree_name":"MS","degree_level":null,"degree_discipline":null,"degree_department":null,"school":null,"contributors":[],"advisors":[],"committee_chairs":[],"committee_members":[],"year":null,"date_issued":"","date_published":null,"updated_at":"2026-07-24T01:29:12Z","subjects":["actuarial present value","APV","default risk","prepayment risk","Statistics and Probability"],"languages":["English"],"rights":[],"rights_urls":[],"identifier_entries":[]},"links":{"outbound_url":"https://scholarsarchive.byu.edu/etd/1383","outbound_label":"Repository record","outbound_source":"dc:identifier"},"metadata_groups":[{"id":"people","label":"People","entries":[{"key":"dc:creator","label":"Author","values":["Howard, Scott T."]}]},{"id":"academic_context","label":"Academic Context","entries":[{"key":"dc:date","label":"Dc Date","values":["2008-05-27T07:00:00Z"]},{"key":"dc:publisher","label":"Institution","values":["Brigham Young University - Provo"]},{"key":"dc:type","label":"Dc Type","values":["Selected Project"]},{"key":"thesis:degree_name","label":"Degree Name","values":["MS"]}]},{"id":"subjects_keywords","label":"Subjects and Keywords","entries":[{"key":"dc:subject","label":"Dc Subject","values":["actuarial present value","APV","default risk","prepayment risk","Statistics and Probability"]}]},{"id":"language_rights","label":"Language and Rights","entries":[{"key":"dc:language","label":"Dc Language","values":["English"]}]},{"id":"identifiers","label":"Identifiers","entries":[{"key":"dc:identifier","label":"Identifier","values":["https://scholarsarchive.byu.edu/etd/1383","https://scholarsarchive.byu.edu/context/etd/article/2382/viewcontent/ETD_CISOPTR_1387.pdf"]}]},{"id":"additional","label":"Additional Metadata","entries":[{"key":"dc:description","label":"Description","values":["Physical and Mathematical Sciences; Statistics"]},{"key":"dc:description.abstract","label":"Abstract","values":["Today's mortgage industry is constantly changing, with adjustable rate mortgages (ARM), loans originated to the so-called \"subprime\" market, and volatile interest rates. Amid the changes and controversy, lenders continue to originate loans because the interest paid over the loan lifetime is profitable. Measuring the profitability of those loans, along with return on investment to the lender is assessed using Actuarial Present Value (APV), which incorporates the uncertainty that exists in the mortgage industry today, with many loans defaulting and prepaying. The hazard function, or instantaneous failure rate, is used as a measure of probability of failure to make a payment. Using a logit model, the default and prepayment risks are estimated as a function of interest rate. The \"optimal\" interest rate can be found where the profitability is maximized to the lender."]},{"key":"dc:format","label":"Dc Format","values":["application:pdf"]},{"key":"dc:source","label":"Dc Source","values":["Brigham Young University - Provo"]},{"key":"dc:title","label":"Title","values":["Optimal Interest Rate for a Borrower with Estimated Default and Prepayment Risk"]}]}],"canonical_facts":{"dc:creator":["Howard, Scott T."],"dc:date":["2008-05-27T07:00:00Z"],"dc:description":["Physical and Mathematical Sciences; Statistics"],"dc:description.abstract":["Today's mortgage industry is constantly changing, with adjustable rate mortgages (ARM), loans originated to the so-called \"subprime\" market, and volatile interest rates. Amid the changes and controversy, lenders continue to originate loans because the interest paid over the loan lifetime is profitable. Measuring the profitability of those loans, along with return on investment to the lender is assessed using Actuarial Present Value (APV), which incorporates the uncertainty that exists in the mortgage industry today, with many loans defaulting and prepaying. The hazard function, or instantaneous failure rate, is used as a measure of probability of failure to make a payment. Using a logit model, the default and prepayment risks are estimated as a function of interest rate. The \"optimal\" interest rate can be found where the profitability is maximized to the lender."],"dc:format":["application:pdf"],"dc:identifier":["https://scholarsarchive.byu.edu/etd/1383","https://scholarsarchive.byu.edu/context/etd/article/2382/viewcontent/ETD_CISOPTR_1387.pdf"],"dc:language":["English"],"dc:publisher":["Brigham Young University - Provo"],"dc:source":["Brigham Young University - Provo"],"dc:subject":["actuarial present value","APV","default risk","prepayment risk","Statistics and Probability"],"dc:title":["Optimal Interest Rate for a Borrower with Estimated Default and Prepayment Risk"],"dc:type":["Selected Project"],"thesis:degree_name":["MS"]},"updated_at":"2026-07-24T01:29:12Z"}