New Model Improves Accuracy in Valuing Mortgage-Backed Securities
The article explores how mortgage prepayment affects the valuation of mortgage-backed securities. It uses a model that considers borrower differences and their prepayment behaviors. The study finds that mortgages with different interest rates have varying tendencies to refinance. It suggests using specific prepayment functions based on the mortgage's interest rate compared to the current refinancing rate. The research shows that considering these factors greatly improves the accuracy of valuing mortgage-backed securities.