Prepayment and the valuation of Canadian mortgage-backed securities : a proportional hazards approach
This paper estimates both parametric and non-parametric proportional hazards models for a subset of Canadian mortgage-backed security data. The estimated parametric hazard function is then used to drive exogenous prepayments within an arbitrage-free model of the term structure of interest rates....
| Main Author: | |
|---|---|
| Format: | Others |
| Language: | English |
| Published: |
2009
|
| Subjects: | |
| Online Access: | http://hdl.handle.net/2429/6359 |
| Summary: | This paper estimates both parametric and non-parametric
proportional hazards models for a subset of Canadian mortgage-backed
security data. The estimated parametric hazard function is
then used to drive exogenous prepayments within an arbitrage-free
model of the term structure of interest rates. Theoretical prices as
well as option-adjusted spreads (OAS) are obtained for three
different mortgage-backed securities using a Monte-Carlo
simulation. Though no formal test is done to compare the ability of
the different hazard models to explain observed market prices, the
non-parametric baseline hazard is more consistent with the age-dependent
prepayment provisions typical of most mortgage
contracts in Canada. === Business, Sauder School of === Real Estate Division === Graduate |
|---|