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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
    as

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    File URL: http://alejandria.ccm.itesm.mx/egap/documentos/2007V1A11Venegas.pdf
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    References listed on IDEAS

    as
    1. repec:hrv:faseco:30728046 is not listed on IDEAS
    2. Franklin Allen, 2005. "Corporate Governance in Emerging Economies," Oxford Review of Economic Policy, Oxford University Press, vol. 21(2), pages 164-177, Summer.
    3. repec:hrv:faseco:30747162 is not listed on IDEAS
    4. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    5. Hoshino, Taeko, 2004. "Family Business in Mexico: Responses to Human Resource Limitations and Management Succession," IDE Discussion Papers 12, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Mortgage valuation; MBS prepayment; MBS default; MBS curtailment; Cox Process;

    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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