The Analyse Of Prepayment Risk In Mortgage Backed Securitization

Mortgage backed securitization (MBS), one of the most important internationalfinancial innovations in the past 20 years, has already become main financing tool inhouse financial markets of U.S. and other developed countries. MBS can directly turnthe real estate investments that lack liquidity but can produce steady income intosecurities investments that can circulate extensively in the financial market. Not onlycan MBS vitalize financial assets, improve the quality of assets, raise the utilizationratio of capital and banks' resistibilities against risk, but also can offer new varieties ofinvestment, expand the source of mortgage, vitalize developers' overstocked goods.Prepayment risk origins from debtors' prepayment behavior can make cash flowunstable, bring great difficulty and complexity to the appraisal of MBS. Therefore it isthe focus of studying MBS to probe into the prepayment behavior, predict theprepayment rate and construct the prediction model of prepayment behavior. Based onthis research background, this paper has carried out the following works:Firstly, this paper has introduced the concept and characteristic of MBS,explained the participation subject, the operational procedure and mechanism of MBS.It has explained all kinds of of mortgage backed securities and described thesecuritisation principle in detail. In addition, it has analysed various kinds of risks inMBS and especially explained the operational risk.Secondly, this paper has analysed the rule-violation of prepayment in MBS,investigated general operational mechanism and risk recognition of prepayment. Wehave divided the factors influence the debtors' prepayment behavior in the basicmortgage pool into five categories, discussed the key interest rate factorcomprehensively and explained several kinds of typical interest rate models andinterest rate route simulation technology.Finally, this paper has introduced some common standards and models forprepayment, applied hazard function about survival theory in biostatistics to analysethe prepayment behavior in MBS, put forward the proportional hazard model (PHM)and made sensitiveness analysis to this model.