The Valuation of CMO Interest Rate Derivatives---A Lattice Approach
| Autor: | Kao, Hsien-Yi, 高心怡 |
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| Rok vydání: | 2000 |
| Druh dokumentu: | 學位論文 ; thesis |
| Popis: | 88 CMOs are among the most popular interest rate derivatives in mortgage markets. These instruments bear not only interest rate risk but prepayment risk as well. This article is intended to construct a unified approach for the valuation of a variety of CMO derivatives. Our approach for valuing CMO bonds is essentially a lattice framework. It combines the Hull-White interest rate model with the proportional hazard model. Specifically, the valuation model has provided a built-in mechanism imbedded in trinomial interest rate trees. The mechanism is to serve as describing the borrower’s prepayment behavior in a predetermined manner. Each node in the lattice is regarded as an independent object and succeeds cash flows into next node by forward induction. This framework provides feasibility to adopt the OOP programming skill for implementing our pricing model. All the CMOs are created from pass-throughs, which is the very generic form for mortgage securization. The development of CMO innovative structures is to meet the needs of institutional investors and broaden the investor base for mortgage-backed securities. Consequently, the other objective of this article is to exam the price behavior as well as the risk characteristics of CMO bonds under different interest rate scenarios. |
| Databáze: | Networked Digital Library of Theses & Dissertations |
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