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Investing in Mortgage-Backed and Asset-Backed Securities Financial Modeling with R and Open Source Analytics von Schultz, Glenn M. (eBook)

  • Erscheinungsdatum: 19.01.2016
  • Verlag: Wiley
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Investing in Mortgage-Backed and Asset-Backed Securities

A complete guide to investing in and managing a portfolio of mortgage- and asset-backed securities Mortgage- and asset-backed securities are not as complex as they might seem. In fact, all of the information, financial models, and software needed to successfully invest in and manage a portfolio of these securities are available to the investment professional through open source software. Investing in Mortgage and Asset-Backed Securities + Website shows you how to achieve this goal. The book draws entirely on publicly available data and open source software to construct a complete analytic framework for investing in these securities. The analytic models used throughout the book either exist in the quantlib library, as an R package, or are programmed in R and incorporated into the analytic framework used. Examines the valuation of fixed-income securities-metrics, valuation framework, and return analysis Covers residential mortgage-backed securities-security cash flow, mortgage dollar roll, adjustable rate mortgages, and private label MBS Discusses prepayment modeling and the valuation of mortgage credit Presents mortgage-backed securities valuation techniques-pass-through valuation and interest rate models
Engaging and informative, this book skillfully shows you how to build, rather than buy, models and proprietary analytical platforms that will allow you to invest in mortgage- and asset-backed securities. GLENN SCHULTZ, CFA (Chicago IL) is the Director of Mortgage Analytics for Performance Trust Capital Partners. Prior to joining Performance Trust he served as the Head of Mortgage and Asset Backed research for Wells Fargo Capital Markets, LLC in Charlotte, NC. While at Wells Fargo, he led his team of analysts to a top 5 institutional investor ranking in non-agency prepayment analysis and consumer ABS. Schultz co-edited (with Frank Fabozzi) Structured Products and Related Credit Derivatives (Wiley) as well as authored several chapters in the Handbook of MBS Securities and The Handbook of Fixed Income Securities .


    Format: ePUB
    Kopierschutz: AdobeDRM
    Seitenzahl: 416
    Erscheinungsdatum: 19.01.2016
    Sprache: Englisch
    ISBN: 9781119221500
    Verlag: Wiley
    Größe: 14188 kBytes
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Investing in Mortgage-Backed and Asset-Backed Securities


It is not the critic who counts;...The credit belongs to the man who is actually in the arena,...who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.
Theodore Roosevelt

Welcome to the arena of structured finance. The purpose of this book is to hone the skills needed to successfully compete in the arena. Bond Lab and the Companion to Investing in MBS are the training tools, both of which are programmed in the R computing language. This analysis presented in this book is based on Bond Lab version Bond Lab is, to my knowledge, the first open source object-oriented software designed for the analysis of structured securities. Bond Lab allows the reader to replicate the analysis presented herein, as well as extend the analysis in any direction she chooses thereby creating a richer learning experience and greater understanding of the material.

Investing in Mortgage-Backed and Asset-Backed Securities , was written in the spirit of reproducible research and its underlying philosophy is simple: Mortgage-backed securities are not too complex to understand. In fact, the basic valuation techniques applicable to all fixed-income securities also form the foundation for the valuation of mortgage-backed securities (MBS) and asset-backed securities (ABS). The perceived complexity of investing in structured products, like MBS, can be attributed to four sources:

The contingency of residential MBS cash flows, which manifest because the borrower holds the option to prepay and terminate her mortgage obligation early.
Cash flow structuring techniques based on the allocation of principal and interest across real estate mortgage investment conduit (REMIC) structures.
Credit structuring techniques that allocate losses through the capital structure of a transaction.
Valuation techniques that "simulate" the economy-interest rate models. Organization of the Book

The main goal of this book is to develop a basic framework for the analysis of mortgage- and asset-backed securities using open source software. The financial models presented throughout the book are developed using R [R Core Team 2013], a freely downloaded open source software development environment.

Many people think of R as a statistics package, however it is much more. The R environment is an "integrated suite of software facilities for data manipulation, calculation, and graphical display" [Smith and R Core Team 2013]. As such, R lends itself easily to the development of an integrated financial analysis tool.

Investing in structured products also requires managing large sets of data. Aside from market data, like swap rates and Treasury prices and yields, the structured product investor must also follow borrower transaction data. Examples include voluntary prepayment rates, payment of scheduled principal and interest, and borrower delinquency and default. More often than not the investor must monitor this information at the loan level. Loan level data are becoming more available, and there are a host of vendors that offer the aggregation and delivery of this kind of data. The loan level data that is needed by the investor to monitor collateral performance is also freely available via trustee and/or issuer websites. In this book, we will use MySQL®, also open source, as the data management solution.

Investing in MBS is divided into five parts. Part One , Valuation of Fixed-Income Securities , introduces the reader to the techniques used to value all fixed-income securities.

Chapter 1 begins with the time value of money. It introduces the concept of the present and future value of $1. The

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