Implied prepayment in agency passing-through mortgage backed securities

Haimei Shao () and Jiongmin Yong ()
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Haimei Shao: Funds Management, BB&T Corporation, Winston-Salem, NC 27103, USA
Jiongmin Yong: #x2020;Department of Mathematics, University of Central Florida, Orlando, FL 32816, USA

International Journal of Financial Engineering (IJFE), 2017, vol. 04, issue 02n03, 1-16

Abstract: This paper studies the empirical facts of agency mortgage-backed securities price dynamics. Based on an explicit formula for MBS pricing developed in this paper, the prepayment rate can be implied from the market price. The standard structural form approach calculates the prices from the structure of prepayments. We reverse the problem, deriving the prepayment from the price. We find that the price change does not necessarily reflect the change of actual prepayment. The explicit formula and calibration strategies developed in this paper provide an alternative way to analyze and valuate the MBS.

Keywords: Asset pricing; agency mortgage-backed security; implied prepayment (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1142/S2424786317500232

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