Techniques for Valuing MBS
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About the Lecture
The lecture Techniques for Valuing MBS by Edu Pristine is from the course Archiv - Market Risks. It contains the following chapters:
- AIM Statements
- Bond Equivalent Yield & Nominal Spread
- Problem
- Reinvestment Risk
- Dynamic Valuation
- Monte Carlo Methodology
- Option Adjusted Spread
- Zero Volatility Spread
- Rate Paths
- Total Return Analysis
- Return Calculation of MBSs
- Limitations for MBS Valuation Measures
Author of lecture Techniques for Valuing MBS
Edu Pristine
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Excerpts from the accompanying material
... and determine the associated nominal spread. Define reinvestment risk. Describe the steps in valuing a mortgage security using Monte Carlo methodology. Define and interpret option-adjusted spread ...
... monthly cash flows and treasury securities have semiannual cash flows. The yield of the treasury security is calculated by doubling the semiannual yield. ...
... MBS has a monthly mortgage yield of 0.45%. If the 10-year treasury bond has a yield of 4.25%, calculate the BEY ...
... have monthly payments which consist of both interest and principal payments. When the interest rates falls, MBSs payments are subjected to ...
... using the binomial model. The CF from a pass-through security is a function of pre-payment rates and these are affected by interest rates from the past, If mortgage rates trend downwards many homeowners will probably ...
... present value of the cash flows for each interest rate path. Step 4: Calculate the theoretical value of the mortgage security ...
... spread K which when added to all the spot rates of all the interest rate paths, will make the average present value of ...
... to price of the MBS discounted at the treasury spot rate plus the spread. Iterative process is required to calculate the Z -Spread. Accounts for changes in principal payments ignores ...
... Increasing the number of simulated rate paths gives the better estimate of the theoretical value of ...
... projected horizon value at the horizon date. The advantage of using this method is that it allows investors to specify reinvestment returns ...
... total periodic return and the annualized total return for a Fannie Mae 5% pass through security ...
... changes in interest rates either immediately, gradually over time or at the horizon. Total return models also ...
... problem with nominal spread is the difference in timing of cash flows of MBS and treasury security. Z-Spread ignores the impact of prepayment risk or ...
... Total return model output is dependent on the assumptions related to the horizon price and prepayment ...
