Prepayment and the Valuation of Mortgage Backed Securities PDF Download

Author: Eduardo S. Schwartz
Publisher:
ISBN:
Category : Housing
Languages : en
Pages : 80

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Author: Frank J. Fabozzi
Publisher: John Wiley & Sons
ISBN: 1118044711
Category : Business & Economics
Languages : en
Pages : 302

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Book Description
An in-depth look at the latest innovations in mortgage-backed securities The largest sector of the fixed-income market is the mortgage market. Understanding this market is critical for portfolio managers, as well as issuers who must be familiar with how these securities are structured. Mortgage-Backed Securities is a timely guide to the investment characteristics, creation, and analysis of residential real estate-backed securities. Each chapter contains cutting-edge information for investors, traders, and other professionals involved in this market, including discussions of structuring mortgage products-such as agency CMOs and new types of mortgages-and an in-depth explanation of the concept of option-adjusted spreads and other analytical concepts used to assess relative value.

Author: Yanli Cheng
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
While option-theoretic models are widely used in valuation of other fixed-income instruments, their applications for the valuation of mortgage-backed securities face challenges. Mortgages are explicitly written with a call option, which allows mortgagors to prepay their mortgages any time before the maturity. The magnitude and timing of exercising the prepayment options are not purely driven by economic factors, but also the mortgagor's individual preferences and personal behaviours. This brings difficulties to valuing mortgage-backed securities with conventional models. In this thesis we aim to explore the prepayment risk caused uncertainties in valuation of mortgage-backed securities. We start with empirically examining an option-theoretic model proposed by Kalotay, Yang and Fabozzi (2004). This model has special features to treat borrower heterogeneity and suboptimal exercises of the prepayment options. Based on the empirical results, we propose to employ linear prepayment functions to model borrower heterogeneity. The new MBS valuation model with the integration of linear prepayment functions is also tested with empirical data. Our results suggest that mortgages with different coupon rates have different refinancing tendencies even towards the same market rate change. Therefore, assuming the same refinancing pattern to all classes of mortgages may lead to errors in pricing mortgages and MBSs. For mortgages with coupon rate below the prevailing refinancing rate (as proxied by the 30 year libor rate) plus the refinancing cost, a prepayment function with a low initial prepayment rate and a high slope will model the prepayments best. On the other hand, for mortgages with coupon rate above the current refinancing rate plus the refinancing cost, a prepayment function with a high initial prepayment and a mild slope will perform best. Meanwhile, refinancing burnout is also an important factor in modelling mortgage prepayment. Our results suggest that when the underlying mortgages are seasoned mortgages, especially when the prepayment option has been deep-in-the-money for a long time, the low initial prepayment high slope function will model their prepayments the best. Once these different refinancing tendencies are factored in the modelling of mortgage prepayment, the accuracy of the MBS valuation model is greatly improved.

Author: Glenn M. Schultz
Publisher: John Wiley & Sons
ISBN: 1119221536
Category : Business & Economics
Languages : en
Pages : 419

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Book Description
A complete guide to investing in and managing a portfolio of mortgage- and asset-backed securities Mortgage- and asset-backed securities are not as complex as they might seem. In fact, all of the information, financial models, and software needed to successfully invest in and manage a portfolio of these securities are available to the investment professional through open source software. Investing in Mortgage and Asset-Backed Securities + Website shows you how to achieve this goal. The book draws entirely on publicly available data and open source software to construct a complete analytic framework for investing in these securities. The analytic models used throughout the book either exist in the quantlib library, as an R package, or are programmed in R and incorporated into the analytic framework used. Examines the valuation of fixed-income securities—metrics, valuation framework, and return analysis Covers residential mortgage-backed securities—security cash flow, mortgage dollar roll, adjustable rate mortgages, and private label MBS Discusses prepayment modeling and the valuation of mortgage credit Presents mortgage-backed securities valuation techniques—pass-through valuation and interest rate models Engaging and informative, this book skillfully shows you how to build, rather than buy, models and proprietary analytical platforms that will allow you to invest in mortgage- and asset-backed securities.

Author: Richard Stanton
Publisher:
ISBN:
Category :
Languages : en
Pages :

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This article presents a new model of mortgage prepayments, based on rational decisions by mortgage holders. These mortgage holders face heterogeneous transaction costs, which are explicitly modeled. The model is estimated using a version of Hansen's (1982) generalized method of moments, and shown to capture many of the empirical features of mortgage prepayment. Estimation results indicate that mortgage holders act as though they face transaction costs that far exceed the explicit costs usually incurred on refinancing. They also wait an average of more than a year before refinancing, even when it is optimal to do so. The model fits observed prepayment behavior as well as the recent empirical model of Schwartz and Torous (1989) Implications for pricing mortgage-backed securities are discussed.

Author: Siu-Kong Joseph Chan
Publisher:
ISBN:
Category :
Languages : en
Pages : 256

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Author: William W. Bartlett
Publisher: McGraw-Hill Education
ISBN: 9781556239731
Category : Business & Economics
Languages : en
Pages : 667

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Book Description
Here is the first user-friendly guide to valuing mortgage-backed securities in the new prepayment environment. William Bartlett offers specific guidelines for making informed decisions, focusing on the questions to ask before pursuing high-stated yield with bond classes and derivatives that may not perform well in volatile markets. The Valuation of Mortgage-Backed Securties explores: the econometric models--such as prepayment and OAS models--used by Wall Street firms to project the performance of specific MBS bond types; the many varieties of mortgage-backed securities, including those with protection features against early prepayment, default, refinancing and first calls on cash flows; how to determine which MBS issue may be appropriate for a specific portfolio objective.

Author: Frank J. Fabozzi
Publisher: Harvard Business Review Press
ISBN:
Category : Business & Economics
Languages : en
Pages : 360

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Book Description
The U.S. mortgage market, estimated at roughly $3.7 trillion, easily exceeds the values of the U.S. government bond market. Daily trading alone runs in the billions of dollars, and the value of mortgage-backed securities now outstanding is more than $1 trillion. The vastness of this market has inspired a variety of financial innovations, both in the design of mortgages and in the securities that derive from them. These innovations--adjustable rate mortgages (ARMs) and mortgage-backed securities (MBSs), which include passthroughs, collateralized mortgage obligations (CMOs), stripped MBSs, and so forth--have been a great success, created a large and growing industry, and demonstrated how financial engineering can redirect cash flows from a pool of assets to more closely satisfy the asset/liability needs of different classes of institutional investors. MBSs have proven to be a useful model for other forms of asset securitizations such as securities based on auto loans and credit card receivables. Mortgage-backed securities provide many useful benefits to both issuers and investors, but they are among the most complex of securities and appear in many interesting puzzling forms. Success in issuing, trading, and investing in MBSs requires a thorough understanding of their pricing and management of prepayment risks, and Professors Fabozzi and Modigliani have made an important contribution to that understanding in this important new book, . In this state-of-the-art treatment, Frank Fabozzi and Franco Modigliani offer the first book to systematically address the complex subject of mortgages and mortgage-backed securities without being unduly mathematical. Beginning with the basic mortgage, theauthors explain the development of the secondary mortgage market. They show how the market has been transformed from total dependence on local deposits to a market with a broad base of investors in the United States, Europe, and Japan. The business of mortgage origination, servicing, insurance, mortgage pooling, and the historical origins of securitization are fully described. The authors take the reader through the procedure for pricing traditional bonds to the complex process of valuing a variety of mortgage-backed securities. Because the borrower/homeowner has an option to prepay part or all of the mortgage at any time, yields and prices on these instruments can vary dramatically. The conventions used in this market for estimating prepayments are discussed and critically evaluated, as are the factors that affect prepayments. Fabozzi and Modigliani provide a review of the fundamental principles used in valuing fixed-income securities, then extend them to the various frames of analysis used in determining values for MBSs. This book fills an important need for mortgage bankers, institutional investors, and other financial professionals who need to understand the mortgage market and its complex instruments.

Author: Andrew S. Davidson
Publisher: Oxford University Press, USA
ISBN: 0199998167
Category : Business & Economics
Languages : en
Pages : 465

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Book Description
Valuation of mortgage-backed securities requires blending empirical analysis of borrower behavior and mathematical modeling of interest rates and home prices, with recognition of various prices of risk and uncertainty. This book offers a detailed description of the sophisticated theories and advanced methods used for the real-world valuation of MBS.

Author: Frank J. Fabozzi
Publisher: McGraw Hill Professional
ISBN: 0071476830
Category : Business & Economics
Languages : en
Pages : 1270

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Book Description
The definitive MBS guide, with fully updated material on the latest mortgage-backed products, methods, models, and portfolio strategies By providing hands-on information vital to market participants, previous editions of The Handbook of Mortgage-Backed Securities were instrumental in fueling the growth of the mortgage-backed securities market. The sixth edition contains all the elements that made previous editions so successful and influential, and provides you with more than 25 new chapters on topics including collateralized mortgage obligations, prepayment derivatives, loan level determinants of repayments, new approaches to MBS valuation, and a survey of non-U.S. mortgage rates.