Optimal Mortgage Refinancing: A Closed Form Solution
We derive the first closed-form optimal mortgage refinancing rule. The expression is derived by using the Lambert-W function to solve a tractable class of mortgage refinancing problems. We calibrate our solution and show that our quantitative results closely match those reported by researchers who use numerical methods.
Published: Sumit Agarwal & John C. Driscoll & David I. Laibson, 2013. "Optimal Mortgage Refinancing: A ClosedâForm Solution," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45, pages 591-622, 06.