This paper studies the pricing problems for options
embedded in fixed rate mortgages by simulation. The least-squares Monte Carlo
method, which was initiated by Longstaff and Schwartz (Rev. Financ. Stud.
14(1): 113-147, 2001), is applied to price the mortgage default and prepayment
options in a financial environment with two stochastic factors: house price and
short term interest rate. A series of numerical comparisons for presented
methods with the PDE analytical approximation method in (IAENG Int. J. Appl.
Math. 39(1): 9, 2009) and the binomial tree method (BTM) (Decis. Econ. Financ.
35(2): 171-202, 2012) are given. The simulation experiments show the efficiency
of presented methods and some cross-validation of the obtained simulation
results are given.