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"Bhattacharya, Anand K"
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Mortgage-backed securities : products, structuring, and analytical techniques
An up-to-date look at the latest innovations in mortgage-backed securities
Since the last edition of Mortgage-Backed Securities was published over three years ago, much has changed in the structured credit market. Frank Fabozzi, Anand Bhattacharya, and William Berliner all have many years of experience working in the fixed-income securitization markets, and have witnessed many cycles of change in the mortgage and MBS sectors. And now, with the Second Edition of Mortgage-Backed Securities, they share their knowledge on many of the products and structuring innovations that have taken place since the financial crisis and fiscal reform.
Written in a straightforward and accessible style, and containing numerous illustrations, this timely guide skillfully addresses the investment characteristics, creation, and analysis of mortgage-backed securities. Each chapter contains cutting-edge concepts that you'll need to understand in order to thrive within this arena.
* Discusses the dynamic interaction between the mortgage industry, home prices, and credit performance
* Addresses revised valuation techniques in which all non-agency MBS must be treated as credit pieces
* Examines the shift in this marketplace since the crisis and the impact on industry and investors
Filled with in-depth insights and expert advice, Mortgage-Backed Securities, Second Edition offers you a realistic assessment of this field and outlines the products, structures, and analytical techniques you need to know about in this evolving arena.
eBook
Mortgage-backed securities
An up-to-date look at the latest innovations in mortgage-backed securities Since the last edition of Mortgage-Backed Securities was published over three years ago, much has changed in the structured credit market. Frank Fabozzi, Anand Bhattacharya, and William Berliner all have many years of experience working in the fixed-income securitization markets, and have witnessed many cycles of change in the mortgage and MBS sectors. And now, with the Second Edition of Mortgage-Backed Securities, they share their knowledge on many of the products and structuring innovations that have taken place since the financial crisis and fiscal reform. Written in a straightforward and accessible style, and containing numerous illustrations, this timely guide skillfully addresses the investment characteristics, creation, and analysis of mortgage-backed securities. Each chapter contains cutting-edge concepts that you'll need to understand in order to thrive within this arena. Discusses the dynamic interaction between the mortgage industry, home prices, and credit performance Addresses revised valuation techniques in which all non-agency MBS must be treated as credit pieces Examines the shift in this marketplace since the crisis and the impact on industry and investors Filled with in-depth insights and expert advice, Mortgage-Backed Securities, Second Edition offers you a realistic assessment of this field and outlines the products, structures, and analytical techniques you need to know about in this evolving arena.
eBook
À la Carte Prepayments
Prepayment of the mortgages underlying mortgage-backed securities (MBS) is a major driver of MBS values. The purpose of this paper is to explore the expanding market for customized MBS, assess the implications of this trend for the greater market, and explore the relevance of various property and obligor attributes for prepayments. Customization has many faces. At the extreme end of the spectrum is a menu-driven approach to creating MBS, where the buyer specifies obligor and property attributes to create securities with more predictable prepayment patterns. Market participants can also choose from several standard options including: 1. low-balance MBS, 2. low-weighted average coupon MBS, 3. one-weighted average loan age MBS, 4. prepayment penalty MBS, 5. high loan-to-value, and 6. alt-A MBS. It appears that the opportune time to invest in such securities is during a selloff when the payups are not that high. Implicit in this conclusion is that a portfolio strategy that focuses on convexity should be ongoing, and one should take advantage of any opportunity to add positive convexity on a cheaper basis.
Journal Article
Synthetic asset swaps
Interest rate swaps represent a contractual agreement between 2 parties to exchange cash flows at periodic intervals based on a notional amount. Such interest rate swaps can be used to create synthetic fixed-rate or synthetic floating-rate assets for non-amortizing assets. The synthetic fixed (floating) assets are produced by purchasing floating- (fixed-) rate assets and then entering into interest rate swaps to transform the asset cash flows to a fixed- (floating-) rate basis. The interest rate swap dynamics of these conversions are essentially the same, except that the swap cash flows are reversed. Several innovative bond structures have been developed to meet specific investor needs. In the world of mortgage-backed securities, the technology has been in the form of collateralized mortgage obligations. Accreting swaps have been mainly used to fix the interest cost of liabilities in liability management applications in which the liability schedule is expected to increase over time. Options on swaps, or swaptions, are relatively new developments in the swap market.
Journal Article
The Interaction of MBS Markets and Primary Mortgage Rates
The US mortgage market has emerged as one of the world's largest asset classes. For a variety of reasons such as product innovation, technological advancement, and demographic and cultural changes, the composition of the primary mortgage market has evolved at a rapid rate, with a host of new products being developed and marketed. In turn, mortgage originators have increasingly utilized the capital markets to fund their lending activities and channel the proceeds into the housing markets. Due to these influences, the determination of mortgage rates has become a complex interaction of market levels, risk-based analysis and pricing, securitization and credit enhancement costs, servicing valuations, and capital considerations. While the creation of private-label deals is conceptually similar to agency pooling practices, the lack of involvement by the agencies necessitates significant differences. The cyclical nature of both the mortgage and financial markets leads them to conclude that, over time, it is likely that private-label alternatives to agency execution will again become viable.
Journal Article
Option expirations and treasury bond futures prices
An investigation is made of the behavior and volatility of Treasury bond futures around the time of expiration of call options on these futures. First, situations in which options trading may affect the prices of Treasury bond futures around the time of option expiration are demonstrated. Next, it is assumed that price movements in the Treasury bond futures follow a martingale process. A variant of the comparison period approach (CPA) developed by Masulis (1980) is employed. The scope of the study is from October 1982-July 1985, resulting in 11 option expirations. No evidence is found of abnormal price behavior in the underlying security either before or after the date of the option expiration, although evidence of increased price and volume volatility prior to the expiration of the option is detected. The results suggest that trading rules based on volatility patterns of Treasury bond futures around option expiration are not likely to be very profitable. Furthermore, evidence is offered on the efficacy of Treasury bond futures options.
Journal Article
Synthetic Mortgage-Backed Securities
The structured mortgage-backed securities (MBS) market, whereby mortgage pass-through securities are used to collateralize assets spanning a wide maturity and risk propensity spectrum, is one of the fastest growing segments of the fixed-income market. These securities have appealing risk/return profiles and cash flow characteristics in certain states of nature. The state-dependent features of such securities can be exploited to obtain even higher-yielding synthetic securities by combining them with other securities with equally attractive cash flow characteristics, albeit in alternative states of nature. Moreover, the yield profile of such securities can be customized to attain a desired portfolio duration. The ability to exploit yield profiles by creating synthetic combinations is explored, using securities such as mortgage strips, accrual bonds, inverse floaters, and adjustable-rate mortgages.
Journal Article
The causal relationship between futures price volatility and the cash price volatility of GNMA securities
Tests designed specifically to detect causality relationships are used to determine the causal impact of the volatility in the futures markets on the volatility in the cash markets for Government National Mortgage Association (GNMA) securities. To test the causality ordering, weekly estimates of daily volatility are constructed for GNMA cash and futures prices. Cash market volatility is determined using daily data on the prices of GNMA 8% and 9% coupon issues from the period December 1979-December 1982. The series are constructed for the bid, the ask, and the average of the bid and ask price; the futures market volatility series are developed for near contracts (maturity of less than 3 months) and far contracts (maturity of 3-6 months). Analysis shows that futures market volatility has some causal influence on cash market volatility, although this relationship is not overly strong. The results represent an indirect negation of the destabilizing effect of futures market volatility since the causal influence is not pervasive.
Journal Article