Adjustable Rate Mortgage-Backed Securities Pricing:Application of CIR Interest Rate Model and Jump Diffusion Process
2003
Hochschulschrift
Zugriff:
91
Previous research regarding MBS (Mortgage-Backed Securities) valuation is usually based on the assumption that interest rates follow a continuously stochastic process. However, there is no research to examine the impact of interest rates in a manner of discrete jump shock on the MBS. In this case, this study attempts to measure the impact via using CIR Model together with a Poisson jump-diffusion process to simulate the discrete jump process. A proportional Hazard Model is also incorporated to take into account the prepayment behavior of mortgage borrowers. ARM (Adjustable Rate Mortgage) is the target we assumed to verify the impact of interest rate jump on the MBS value. The main conclusions we find include: (1) The value of ARM with jump-diffusion process seems to be lower than that without jump-diffusion process; (2) The higher the interest rate volatility is, the higher the value of ARM appears; and (3) The higher the mean-reverting parameter emerges, the higher the value of ARM appears.
Titel: |
Adjustable Rate Mortgage-Backed Securities Pricing:Application of CIR Interest Rate Model and Jump Diffusion Process
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Autor/in / Beteiligte Person: | 阮富揚 |
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Veröffentlichung: | 2003 |
Medientyp: | Hochschulschrift |
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