IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Analysis of Senior-Subordinated Structures Backed by Private-Label Mortgages

Listed author(s):
  • Kose John
  • Crocker Liu
  • R. A. Radhakrishnan

This paper does a valuation analysis of senior-subordinated structure tranches backed by non-agency mortgages. The valuation is done using Monte Carlo simulation and employs the CIR interest rate process in conjunction with an empirical model estimated for non-agency mortgage prepayments and defaults. The sensitivity of the value of tranches to a number of variables are analyzed. We find that the interest rate process parameters significantly affect prepayments and defaults but not the relative value of the senior tranche. It is found that with the shifting of prepayments, the senior trances does not dominated all the junior tranches at all interest rates. The shifting of prepayments has the unintended effect of providing stability to the junior tranches by making their cashflows less sensitive to prepayments. Our main conclusion is that while the shifting of prepayments increases protection from default to the senior tranche for a given level of subordination, it has the unwanted effect of lowering its value through increased contraction risk. The value loss should be taken into account in determining the optimum level of subordination.

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Paper provided by New York University, Leonard N. Stern School of Business- in its series New York University, Leonard N. Stern School Finance Department Working Paper Seires with number 98-047.

in new window

Date of creation: Feb 1998
Handle: RePEc:fth:nystfi:98-047
Contact details of provider: Postal:
U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126

Phone: (212) 998-0100
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fth:nystfi:98-047. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.