The Implied Option Pricing Of The Floating Rate Mortgages

China’s financial market is still in the process of development and formation; unified national financial market has not been fully established. Interest rate market has not formed, interest rate is controlled by the central bank. Statistical data show that the adjustment of loan rates at least once a year on average. When interest rates rise, it will increase the borrower’s monthly repayment, at this time, as a rational person would select compliance or prepayment or default based on their own maximized benefits. If borrower chooses prepayment or default, it will result in losses to commercial banks. Some commercial banks in order to avoid losses, have developed the system of prepayment penalty. Therefore, standing on the position of view of the lender and the borrower, reasonable pricing of mortgage is very important.This article discussed that option pricing and parameter estimation of housing mortgage loans. The paper can be divided into three parts. The first part is the first chapter, outlined the development status of housing mortgage loans and the impact on the commercial banks error pricing to the society. After review the recent related research literature on the mortgage of implied option, we discuss the issues of the literature. The second part including ChapterⅡto Chapter IV is the pricing of implied option to mortgage; Its main feature is base on the floating rate and American options to explore. The third part is the fifth chapter.It mainly solve the model, and estimate the parameter of the model. ChapterⅥis the conclusion, recommendations and further research.The existing research literatures, either based on the assume of fixed rate loan, or on determinant payment date to prepayment or default. And the discount rate of cash flow is a constant at defferent terms. The innovations of this paper are that base on a floating interest rate, assuming loan interest rate follow a jump process, underlying mortgage options are American options, market interest rate (discount rate) is a random variable as in the CIR model on the implied option mortgage study. Because expressions of options with random item, we use the method of mathematical expectation to solve implied option value.Undeniable, study of this article is tentative. Weather the result of implicit option pricing expressions and parameters estimation is more reasonable, needing further research.