Callable Mortgage Bonds

Callable mortgage bonds are utilized by individuals and companies to finance the purchase of real estate, and this asset class therefore plays a crucial role in modern society. Callable mortgage bonds constitute an enormous asset class and often offer long-term stable investments that are very attractive for pension funds.

This book focuses on the pricing and calculation of risk numbers of callable fixed-rate mortgage bonds. Owing to the, from a financial perspective, irrational behaviour of borrowers, the pricing of these instruments usually requires the use of numerical solutions. Traditionally, it has been either a Monte Carlo simulation or a Finite Difference method. This book covers both methods and, in addition, the relatively new Fourier technique. This latter technique also creates a link between the interest rate derivatives market and the market for callable mortgage bonds. Finally, a chapter presenting a model for the valuation of a mortgage credit institute's loan book is included.

Chapter 1. Introduction. - Chapter 2. Fixed Income. - Chapter 3. Mathematical Finance. - Chapter 4. Prepayment Model Estimation. - Chapter 5. Stochastic Interest Rate Model. - Chapter 6. Simulation. - Chapter 7. Finite Difference. - Chapter 8. Semi-Analytic MBS Pricing. - Chapter 9. adjustable-rate Mortgages. - Chapter 10. Valuation of a Mortgage Credit Institute s Loan Book. - Chapter 11. Cash Settled Swaptions.