European University Institute Library

Mortgage valuation models, embedded options, risk, and uncertainty, Andrew S. Davidson and Alexander Levin

eng

Includes bibliographical references and index

illustrations

index present

non fiction

Mortgage valuation models

bibliography

857370303

Andrew S. Davidson and Alexander Levin

Financial Management Association survey and synthesis series

embedded options, risk, and uncertainty

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.--, Provided by Publisher

1 Fundamentals of MBS Risk and Valuation Chapter 1 Dimensions of Uncertainty Chapter 2 Fundamentals of Securitization Chapter 3 Investors in Mortgage-Backed Securities Chapter 4 Valuation with Risk Factors and Risk Neutrality Chapter 5 Short-Rate Term-Structure Modeling Chapter 6 Risk-Neutral Modeling Using Forward and Futures Prices Part 2 Modeling and Valuation of Agency MBS Chapter 7 Agency Pool Prepayment Models Chapter 8 Engineering of Valuation Models without Simulations Chapter 9 Monte Carlo Methods Chapter 10 Applications of the OAS Valuation Approach to Agency MBS Chapter 11 Prepayment Risk Neutrality (the concept of prOAS) Part 3 Modeling and Valuation of Non-Agency MBS Chapter 12 Loan Level Modeling of Prepayment and Default Chapter 13 The Concept of Credit OAS Chapter 14 Empirical Modeling of Home Prices Chapter 15 Credit Analysis on a Scenario Grid and Analytical Shortcuts Part 4 Analysis of the 2008-2009 Financial Crisis Chapter 16 Lesson #1: The Role of Financing and Affordability in the Formation of Housing Prices Chapter 17 Lesson #2: The CDO Calamity and Six Degrees of Separation Chapter 18 Lesson #3: Fair versus Intrinsic Valuation under Market Duress Part 5 Building a Healthy Housing Finance System Chapter 19 How to Measure Risk, Rank Deals and Set Aside Capital Chapter 20 How to Price New Loans Chapter 21 The Future of Housing Finance and MBS Modeling References