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L2 50 Valuing Mortgage-Backed and Asset-Backed Securities > b describe the Monte Carlo simulation model for valuing a mortgage-backed security; > Flashcards

b describe the Monte Carlo simulation model for valuing a mortgage-backed security; Flashcards

L2 50 Valuing Mortgage-Backed and Asset-Backed Securities (9 decks)

a explain the calculation, use, and limitations of the cash flow yield, nominal spread, and zero-volatility spread for a mortgage-backed security and an asset-backed security;

b describe the Monte Carlo simulation model for valuing a mortgage-backed security;

c describe path dependency in passthrough securities and the implications for valuation models;

d explain how the option-adjusted spread is calculated using the Monte Carlo simulation model and how this spread measure is interpreted;

e evaluate a mortgage-backed security using option-adjusted spread analysis;

f explain why effective durations reported by various dealers and vendors may differ;

g analyze the interest rate risk of a security, given the security’s effective duration and effective convexity;

h explain cash flow, coupon curve, and empirical measures of duration, and describe limitations of each in relation to mortgage-backed securities;

i determine whether the nominal spread, zero-volatility spread, or option-adjusted spread should be used to evaluate a specific fixed income security.

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