• Title/Summary/Keyword: Morgage-Backed Securities

Search Result 1, Processing Time 0.017 seconds

A PREPAYMENT-RISK-NEUTRAL PRICING MODEL FOR MORTGAGE-BACKED SECURITIES

  • Ahn, Seryoong;Song, Wan Young;Yoon, Ji-Hun
    • Korean Journal of Mathematics
    • /
    • v.29 no.2
    • /
    • pp.409-424
    • /
    • 2021
  • In this paper, we investigate a pricing model for mortgage-backed securities (MBSs) of a pay-through type of collateral mortgage obligation (CMO), embedded call options, which can be exercised by the intermediary, and pass-through MBSs. We suggest a prepayment-risk-neutral pricing model, applying a reduced-form prepayment rate model, and then compute and investigate the appropriate prices and spreads in the coupon rates between CMOs and PT MBSs. We believe that this study contributes in that it provides a sophisticated pricing model for MBSs, especially to the financial markets which are not advanced enough to finance with a simple type of MBSs.