Analysis of Senior-Subordinated Structures Backed by Private-Label Mortgages
Loading...
No Access Until
Permanent Link(s)
Collections
Other Titles
Abstract
This paper does a valuation analysis of senior-subordinated struc ture tranches backed by non-agency mortgages. The valuation is done using Monte Carlo simulation and employs the CIR interest rate process in conjunction with an empirical model estimated for non-agency mortgage prepayments and defaults. The sensitivity of the value of tranches to a number of variables are analyzed. We find that the interest rate process parameters significantly affect prepayments and defaults but not the relative value of the senior tranche. It is found that with the shifting o f prepayments, the senior tranche does not dominate all the junior tranches at all interest rates. The shifting of prepayments has the unintended effect of providing stability to the junior tranches by making their cashflows less sensitive to prepayments. Our main conclusion is that while the shifting o f prepayments increases protection from default to the senior tranche for a given level of subordination, it has the unwanted effect of lowering its value through increased contraction risk. This value loss should be taken into account in determining the optimum level of subordination.
Journal / Series
Volume & Issue
Description
Sponsorship
Date Issued
1997-12-23
Publisher
Keywords
tranches; mortgages; prepayment; default rate; mortgage-backed securities
Location
Effective Date
Expiration Date
Sector
Employer
Union
Union Local
NAICS
Number of Workers
Committee Chair
Committee Co-Chair
Committee Member
Degree Discipline
Degree Name
Degree Level
Related Version
Related DOI
Related To
Related Part
Based on Related Item
Has Other Format(s)
Part of Related Item
Related To
Related Publication(s)
Link(s) to Related Publication(s)
References
Link(s) to Reference(s)
Previously Published As
Government Document
ISBN
ISMN
ISSN
Other Identifiers
Rights
Required Publisher Statement: Copyright held by the authors.
Rights URI
Types
preprint