Mortgage Valuation Models: Embedded Options, Risk, and Uncertainty

Mortgage Valuation Models: Embedded Options, Risk, and Uncertainty

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Mortgage-backed securities (MBS) are among the most complex of all financial instruments. Analysis of MBS requires blending empirical analysis of borrower behavior with the mathematical modeling of interest rates and home prices. Over the past 25 years, Andrew Davidson and Alexander Levin have been at the leading edge of MBS valuation and risk analysis. Mortgage Valuation Models: Embedded Options, Risk, and Uncertainty contains a detailed description of the sophisticated theories and advanced methods that the authors employ in real-world analyses of mortgage-backed securities. Issues such as complexity, borrower options, uncertainty, and model risk play a central role in the authors approach to the valuation of MBS. The coverage spans the range of mortgage products from loans and TBA (to-be-announced) pass-through securities to subordinate tranches of subprime-mortgage securitizations. With reference to the classical CAPM and APT, the book advocates extending the concept of risk-neutrality to modeling home prices and borrower options, well beyond interest rates. It describes valuation methods for both agency and non-agency MBS including pricing new loans; approaches to prudent risk measurement, ranking, and decomposition; and methods for modeling prepayments and defaults of borrowers. The authors also reveal quantitative causes of the 2007-09 financial crisis and provide insight into the future of the U.S. housing finance system and mortgage modeling as this field continues to evolve. This book will serve as a foundation for the future development of models for mortgage-backed securities.0 2 4 6 8 10 12 14 41-60 61-80 81-100 101-120 121-140 LTV Range 300-560 561-620 621-680 681-740 741-800 DtoC: ... High credit score borrowers are indeed less likely to become delinquent, but once delinquent they are less likely toanbsp;...

Title:Mortgage Valuation Models: Embedded Options, Risk, and Uncertainty
Author: Andrew Davidson, Alexander Levin
Publisher:Oxford University Press - 2014-05-22

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