Research On Pricing Mortgage-backed Securities (MBS) In China

Mortgage-backed Securities (MBS), a financial innovation tool born in America has broken the commercial bank's traditional credit chain among loaner, bank and money saver, while the new credit chain linked more participator including money saver, bank, loaner, 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. On September 15^th 2005, China Construction Bank issued the first residential Mortgage-backed securities in China. From then on Mortgage-backed Securitization of China stepped into a whole new age. The pricing of Mortgage-backed Securities (MBS) is the key of MBS, pricing exactly makes MBS successful, but higher or lower pricing for MBS will become tragedy.The first chapter of this paper is the introduction. It introduces the background and the sense of this paper, and research production of the MBS pricing in our country and the foreign country. The second chapter introduces the history of MBS of the world, the types of MBS, and the relative risk with this. The third chapter expatiates the existent MBS pricing models by the numbers including the interest model, the prepayment model and the pricing methods. The fourth chapter processes a pricing simulation. The Vasicek interest model that could reflect the interest fluctuating of China best is chose as the interest model in this process. The PHM model that bases on the Weibull Distribution is chose as the prepayment model, because it could reflect the partial prepayment in recent years. OAS method is chose as the pricing method for considering the option value of the prepayment. Furthermore, this paper discuss how the prepayments and the price of MBS changes when the market conditions and the macroeconomics environments are different by sensitivity analysis. At last, a simple sum-up and a future expectation of this research are given.