Abstract

http://ssrn.com/abstract=955358
 
 

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Analysis of Mortgage Backed Securities: Before and after the Credit Crisis


Harvey J. Stein


Bloomberg L.P.

Alexander L. Belikoff


Google Inc.

Kirill Levin


Bloomberg Financial Markets (BFM) - Bloomberg LP

Xusheng Tian


Bloomberg L.P. - R&D

January 5, 2007

Credit Risk Frontiers: Subprime Crisis, Pricing and Hedging, CVA, MBS, Ratings, and Liquidity; Bielecki, Tomasz,; Damiano Brigo and Frederic Patras, eds., February 2011

Abstract:     
Valuation of mortgage backed securities (MBSs) and collateralized mortgage obligations (CMOs) is the big science of the financial world. There are many moving parts, each one drawing on expertise in a different field. Prepayment modeling draws on statistical modeling of economic behavior. Data selection draws on risk analysis. Interest rate modeling draws on classic arbitrage pricing theory applied to the fixed income market. Index projection draws on statistical analysis. Making the Monte Carlo analysis tractable requires working with numerical methods and investigation of a variety of variance reduction techniques. Tractability also requires parallelization, which draws on computer science in building computation clusters, applying new technology such as graphical processing units (GPUs), and analysis and optimization of parallel algorithms.

Here we detail the different components, describing the approach we have taken in each area. Of particular interest is how the credit crisis that started in 2007 has impacted the modeling.

The end result is that accurate price calculations on individual securities can be done in real time, and the entire universe of CMOs and MBSs can be analyzed overnight.

Number of Pages in PDF File: 42

Keywords: MBS, CMO, OAS, credit crisis, subprime crisis, interest rate modeling, rate, yield, yield curve, Gaussian, Monte Carlo, parallelization, GPU, CUDA, Markovian, mortgage, mortgage backed, collateralized mortgage obligation, collateralized, structured product, prepayment, prepayment modeling

JEL Classification: G12, G13, C15, C51, C52, C61, C63

Accepted Paper Series





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Date posted: January 7, 2007 ; Last revised: March 16, 2011

Suggested Citation

Stein, Harvey J. and Belikoff, Alexander L. and Levin, Kirill and Tian, Xusheng, Analysis of Mortgage Backed Securities: Before and after the Credit Crisis (January 5, 2007). Credit Risk Frontiers: Subprime Crisis, Pricing and Hedging, CVA, MBS, Ratings, and Liquidity; Bielecki, Tomasz,; Damiano Brigo and Frederic Patras, eds., February 2011. Available at SSRN: http://ssrn.com/abstract=955358

Contact Information

Harvey J. Stein (Contact Author)
Bloomberg L.P. ( email )
731 Lexington Avenue
New York, NY 10022
United States
212 617 3059 (Phone)
Alexander L. Belikoff
Google Inc. ( email )
76 Ninth Ave.
New York, NY 10011
United States
HOME PAGE: http://www.google.com
Kirill Levin
Bloomberg Financial Markets (BFM) - Bloomberg LP ( email )
731 Lexington Avenue
New York, NY 10022
United States
Xusheng Tian
Bloomberg L.P. - R&D ( email )
New York, NY
United States
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