This eCourse consists of two modules. Module 1 looks at the market for MBS issued by quasi-governmental agencies. The main types of trading, such as TBA and specified pool trading, and the key tranches of CMOs, such as PACs, TACs, floaters, principal only and interest only classes, are also examined in detail.
Module 2 looks at the main reasons why borrowers prepay mortgage loans, including interest rate and noninterest rate-related factors. The measurement of prepayment sensitivities through effective duration, option-adjusted spread (OAS), and Monte Carlo simulation is also discussed in detail.
On completion of this course, you will be able to:
- Recognise the main characteristics of agency MBS and the trading methodologies, including to be announced (TBA) trading and specified pool trading
- Identify the key features of collateralized mortgage obligations (CMOs), including protected tranches, planned amortization class (PAC) and target amortization class (TAC), securities, floaters, and strip
- Identify the key factors behind borrower prepayment, including interest-based and noninterest-based motivations
- Recognise the key methods used to measure prepayment sensitivities
Module 1: Securitization - US MBS
Topic 1: US Agency MBS Market
Topic 2: Collateralized Mortgage Obligations (CMOs)
Module 2: Securitization - Prepayment Risk
Topic 1: Prepayment Motives
Topic 2: Measuring Prepayment Sensitivities