Friday, December 2, 2016

Fixed amortization of loans and the risk

When the loan is repayed in timed series.
The borrower has control of the default event, even when publicly stressed, the borrower can still choose the default moment. The payment contract bars enforcement until payments stop.  So, a bunch of loans under stress, generally the uncertainty of default is greater than any other uncertainty.  The note holder has sudden, unpriced  risk.

I can't see how to trade time, yet.

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