IDEAS home Printed from https://ideas.repec.org/a/taf/apmtfi/v16y2009i5p401-427.html
   My bibliography  Save this article

Valuation of Mortgage-Backed Securities and Mortgage Derivatives: A Closed-Form Approximation

Author

Listed:
  • Andreas Kolbe
  • Rudi Zagst

Abstract

In this paper we develop a closed-form and thus computationally highly efficient formula to approximate the value of fixed-rate mortgage-backed securities (MBS). Our modelling framework is based on reduced-form and prepayment-risk-neutral valuation techniques and offers two major extensions compared with existing closed-form approximation approaches: we include a stochastic baseline prepayment factor in our model and we are able to capture the usual S-shaped curve of the refinancing incentive by a piecewise linear approximation. We apply our model to GNMA pass-through securities and test it on a 10-year sample of monthly GNMA MBS market prices for a wide range of coupons.

Suggested Citation

  • Andreas Kolbe & Rudi Zagst, 2009. "Valuation of Mortgage-Backed Securities and Mortgage Derivatives: A Closed-Form Approximation," Applied Mathematical Finance, Taylor & Francis Journals, vol. 16(5), pages 401-427.
    • Handle: RePEc:taf:apmtfi:v:16:y:2009:i:5:p:401-427
    DOI: 10.1080/13504860902781419
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/13504860902781419
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/13504860902781419?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Matteo Bissiri & Riccardo Cogo, 2017. "Behavioral Value Adjustments," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 20(08), pages 1-37, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:apmtfi:v:16:y:2009:i:5:p:401-427. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAMF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.