A parabolic variational inequality arising from the valuation of fixed rate mortgages
Lishang Jiang, Baojun Bian, Fahuai Yi · European Journal of Applied Mathematics · 2005
In this paper a one-dimensional parabolic variational inequality which typically arises in option pricing of fixed rate mortgage loan is studied. The main goal is to study the properties of the free boundary. The monotonicity and smoothness of free boundary are proved and its behavior near expiry is considered as well.