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The Valuation of Mortgage Backed Securities with Stochastic Probabilities of Default and Prepayment

Author

Listed:
  • Francisco Venegas Martínez

    (Instituto Politécnico Nacional)

  • J. Víctor Reynoso Vendrell

    (HSBC)

Abstract

The aim of this paper is to provide a new approach to project the Mortgage Backed Securities (MBS) cash flows in emerging markets where collateral information is limited, wrong or scarce. Under this framework, we use the Cox Process to model stochastic probabilities of prepayment and default. The model deals with general intensity dynamics and it is applied to the starting MBS Mexican market

Suggested Citation

  • Francisco Venegas Martínez & J. Víctor Reynoso Vendrell, 2007. "The Valuation of Mortgage Backed Securities with Stochastic Probabilities of Default and Prepayment," Revista de Administración, Finanzas y Economía (Journal of Management, Finance and Economics), Tecnológico de Monterrey, Campus Ciudad de México, vol. 1(2), pages 148-168.
    • Handle: RePEc:ega:rafega:200711
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    More about this item

    Keywords

    Mortgage valuation; MBS prepayment; MBS default; MBS curtailment; Cox Process;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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