Abstract
Complex securities that are based on combinations of bonds and derivatives have
become very common. The translation to such inventions to loans to private
household borrowers changes the rules of the game of derivatives and this practice
becomes potentially unfair. The paper demonstrates this contention by reference to
one particular fairly popular arrangement of home mortgage loans where the monthly payments are one-sided linked to a currency exchange rate. A real world example is described, a pricing model applied. The complexity of the valuation process is beyond comprehension even to inteligent rational borrower. Hence these types of loans are potentially unfair to naïve borrowers
become very common. The translation to such inventions to loans to private
household borrowers changes the rules of the game of derivatives and this practice
becomes potentially unfair. The paper demonstrates this contention by reference to
one particular fairly popular arrangement of home mortgage loans where the monthly payments are one-sided linked to a currency exchange rate. A real world example is described, a pricing model applied. The complexity of the valuation process is beyond comprehension even to inteligent rational borrower. Hence these types of loans are potentially unfair to naïve borrowers
| Original language | English |
|---|---|
| Pages (from-to) | 1-13 |
| Journal | Handbook on Economics, Finance and Management Outlooks |
| Volume | 3 |
| State | Published - 2015 |