The Study On Pricing Method For Mortgage-Backed Securities Based On Option-Adjusted Spread Model

With the rapid development of economy, the rigid demand for personal housing has increased by degrees. However, such loans are illiquid, and capital from deposits can hardly support the needs. Thus there is a pressing demand for mortgage-backed securitization in China. Domestic academic research has been focusing on design of mortgage-backed securities transaction system, formulation of laws and regulations, and evasion of credit risk, whereas the difficult problem of developing an appropriate pricing method remains unsolved.Depending on the stated background, three components of issue price of MBS are studied, which are intrinsic value, risk premium and issue cost. First, OAS pricing model is chosen to calculate intrinsic value. Meanwhile, particularity of Chinese money rate formed mechanism is pointed out, and a model that describes such term structure of interest rate is introduced to improve the original OAS model. Second, in order to push the development of Chinese mortgage-backed securitization, concept of RAROC is redefined here to construct a price adjustment coefficient that measures risk premium of asset pool. This coefficient helps bank to issue its MBS products at a discount or at a premium according to default risk and profitability of asset pool, therefore arise bank’s initiative. In addition, an example is demonstrated to explain the calculate process and function of price adjustment coefficient based on RAROC model. Third, by contrasting foreign and domestic MBS operating mechanism, differences between them are analyzed, as well as their effects on issue cost.This study explores three components of issue price of MBS, and is aimed to provide theoretical foundation and practical guidance for future MBS issuing.