China's MBS Valuation Research Based On Proportional Hazard Model

Since September 2014,the PBC and CBRC began to promote the MBS among banking institutions.There are two main reasons for this scheme: first,the financial services for the construction of affordable housing projects can be further enhanced by increasing loans granted by commercial banks.Also,this practice will also continue to guide residents in reasonable housing consumption and promote sustained and healthy development of the real estate market.Second,the commercial bank faces the biggish finance risks which caused by the real estate because a great number of loan is invested into the real estate.MBS can improve the capital adequacy ratio and liquidity of commercial banks and provide a means of management of assets and liabilities.Following the background described above,this paper makes an attempt to complement the theory of MBS pricing in China on this background.Due to MBS in our country still belongs to the emerging financial derivatives and involving the interests of investors,besides,the core of any financial products business reflects on the pricing of their tools,so exploring suitable pricing theory for China's MBS exists theoretical and practical value.This paper offers a tentative application of nonparametric approach to the empirical valuation of residential mortgage performance in China.We apply proportional hazard method,one of the branches of reduced-form model.Besides the aging effect,PHM model allows for other specific factors that can affect mortgage payment.Following the recently developed literature on proportional hazard model,this paper extends the technique of estimating the stochastic processes of prepayment and default for mortgages.By modelling the hazard rate dynamics through a mixed-jump diffusion model,this paper estimates the jump-diffusion process using a kernel-based nonparametric method,rather than specify particular parametric forms for the drift and the diffusion functions within the model.To test the empirical performance of this model,CIR model is integrated into the valuation of "Jianyuan 2005-1 RMBS" within an option adjusted spread framework.Finally,Chapter5 concludes the whole thesis and points out the limitations.