The Valuation of Mortgage-Backed Securities: the Option-Adjusted Spread by Combining HJM Interest Rate Model and PHM Repayment Model

• Main Authors: Alex Yu, 余遠琪
• Other Authors: Chin-Sheng Huang
• Format: Others
• Language: zh-TW
• Published: 2003
• Online Access: http://ndltd.ncl.edu.tw/handle/02780304204911110549

碩士 === 國立雲林科技大學 === 財務金融系碩士班 === 91 === Mortgage-backed securities (MBS) are the originators use mortgage loans as collateral to issue bonds in the capital markets. After thirty years development in US Markets, the instruments have become the most popular fixed income products in the bond markets. The valuation of mortgage-backed securities involves both of interest rate risk and prepayment uncertainty. This study attempts the Heath-Jarrow-Morton (HJM) interest model for describing the forward rate dynamics and proportional hazard model (PHM) as the prepayment method to evaluate MBS. In addition, the option adjusted spread (OAS) is employed to calculate the option premium implied in the MBS. The empirical results show: (1) the deviation of static cash flow yields from market quotations is about 8 basis points; (2) the OAS under the HJM ranges from 64.43 bps to 65.74 bps; (3) when considering the PHM prepayment possibility, the OAS is between 78.98 bps and 79.80 bps; (4) therefore, the prepayment option premium lies in range of 14.06 bps and 14.55 bps.