Pricing Study On Mortgage Backed Securities

Mortgage Backed Securitization (MBS), a financial innovation tool born in America, has broken the commercial bank's traditional credit chain among leaner, bank and money saver, while the new credit chain linked more participator including money saver, bank, leaner, Special Purpose Vehicle(SPV), investor and financial service agency. MBS not only reduced the liquidity risk of bank, but also make all the participator gain their profits. The pricing of Mortgage-backed Securities (MBSes) is the key of MBS, pricing exactly makes MBS successful, but higher or lower pricing for MBSes will become tragedy.Based on the operation flow of MBS, this paper analyzed the risk factors hide in the process of MBS. MBS consist of four processes: mortgage loan, purchase loan, MBSes issue and management. The prepayment risk was the primary risk factor to the price of MBSes, so the analysis of prepayment risk is the first task of this paper. After analyze two types of prepayment, we took the 100%PSA benchmark to measure the prepayment, the analysis of other risk(default, liquidity etc )also included in the paper.The popular pricing methods of MBSes is Static Cash Flow Yield (SCFY), Option Adjusted Spread(OAS)and Refinancing Threshold Pricing(RTP ). This paper compared the three popular pricing methods and select the SCFY method combined with OAS method to modeling our country's MBSes pricing model, in view of the current situation of China, the paper took pass-through securities as the near future MBSes issue class. Based on the principle of term structure of interest rate, the paper modeling China MBSes pricing model through Monte Carlo simulation, at last of this paper, we give an example to illustrate the pricing process of our model.