The Development and Pricing Model of Morgage-Backed Securities(MBS) for Taiwan

• Main Authors: Tse-Lan,Ho, 何澤蘭
• Other Authors: Shyan Yuan,Lee
• Format: Others
• Language: zh-TW
• Published: 1999
• Online Access: http://ndltd.ncl.edu.tw/handle/74036456215543800021

碩士 === 國立臺灣大學 === 財務金融學研究所 === 87 === TITLE OF THESIS：The Development and Pricing Model of Mortgage-Backed Securities (MBS) for Taiwan NAME OF INSTITUTE：Graduate Institute of Finance, National Taiwan University DRADUATE DATE：June, 1999 DEGREE CONFERRED：Master NAME OF STUDENT：TSE-LAN, HO ADVISOR：Dr. Lee, Shyan Yuan ABSTRACT： When the banks originate mortgages, they hence bear the prepayment risk. To shift such risk and manage the interest rate risk, they can repackage the mortgages without liquidity into a pool and issue the mortgage-backed securities, MBS, whose cash flows depend on the cash flows from the underlying pool of mortgages. My research focuses on the MBS issued by the home mortgage bankers in order to liquidate their mortgage assets and loan capital. Firstly, I discuss the advantages for Taiwan to develop the MBS and the risk and return characteristics for MBS. Secondly, I design a MBS issuing term, apply the Hull and White trinomial lattice model and provide a forward induction pricing methodology which actually solve the problems of path-dependent and American style for the MBS simultaneously. And I get the theoretical price for the MBS. Finally, I simulate three kinds of term structure of interest rates to discuss the price-yield relationship for the MBS and the straight bond. Given the downward sloping term structure, I verify that the price difference between the MBS and the straight bond is the largest. In other words, the value for a strip (package) of call options embedded in the MBS is the largest. Besides, the greater the interest rate volatility, the higher the value for a strip of call options. Furthermore, unlike the straight bond, expected cash flows in each period for the MBS is not fixed and change as the interest rate change, so I present a numerical method to measure the price volatility characteristics for the MBS, referred as effective duration and effective convexity. It is worth noting that the effective convexity for the MBS is negative in some interest rate range. For Taiwan''s financial institutions issuing such a new financial product, MBS, all of the research results in this paper can be a great reference both in valuation and risk management. The asset securitization concept and the process for developing the MBS, including demand-recognition, product-creation, and so on can be applied to other financial products in the financial engineering field in Taiwan.