Valuation of mortgage-backed securities requires blending empirical analysis of borrower behavior and mathematical modeling of interest rates and home prices, with recognition of various prices of risk and uncertainty. This book offers a detailed description of the sophisticated theories and advanced methods used for the real-world valuation of MBS.

• Introduction


• Part 1 Fundamentals of MBS Risk and Valuation


• Chapter 1 Dimensions of Uncertainty


• Chapter 2 Fundamentals of Securitization


• Chapter 3 Investors in Mortgage-Backed Securities


• Chapter 4 Valuation with Risk Factors and Risk Neutrality


• Chapter 5 Short-Rate Term-Structure Modeling


• Chapter 6 Risk-Neutral Modeling Using Forward and Futures Prices


• Part 2 Modeling and Valuation of Agency MBS


• Chapter 7 Agency Pool Prepayment Models


• Chapter 8 Engineering of Valuation Models without Simulations


• Chapter 9 Monte Carlo Methods


• Chapter 10 Applications of the OAS Valuation Approach to Agency MBS


• Chapter 11 Prepayment Risk Neutrality (the concept of prOAS)


• Part 3 Modeling and Valuation of Non-Agency MBS


• Chapter 12 Loan Level Modeling of Prepayment and Default


• Chapter 13 The Concept of Credit OAS


• Chapter 14 Empirical Modeling of Home Prices


• Chapter 15 Credit Analysis on a Scenario Grid and Analytical Shortcuts


• Part 4 Analysis of the 2008-2009 Financial Crisis


• Chapter 16 Lesson #1: The Role of Financing and Affordability in the Formation of Housing Prices


• Chapter 17 Lesson #2: The CDO Calamity and Six Degrees of Separation


• Chapter 18 Lesson #3: Fair versus Intrinsic Valuation under Market Duress


• Part 5 Building a Healthy Housing Finance System


• Chapter 19 How to Measure Risk, Rank Deals and Set Aside Capital


• Chapter 20 How to Price New Loans


• Chapter 21 The Future of Housing Finance and MBS Modeling


• References

Andrew Davidson is a financial innovator and leader in the development of financial research and analytics. He has worked extensively on mortgage-backed securities product development, valuation, and hedging. He is president of Andrew Davidson & Co., Inc., a New York firm specializing in the application of analytical tools to investment management, which he founded in 1992. He is co-author of the book Securitization: Structuring and Investment Analysis and Mortgage-Backed Securities, Investment Analysis & Valuation Techniques and has written numerous articles that have appeared in The Handbook of Mortgage-Backed Securities, Mortgage-Backed Securities: New Applications and Research and The Journal of Real Estate Finance and Economics. He received an MBA in Finance at the University of Chicago and a BA in Mathematics and Physics at Harvard.
Alex Levin is Director of Financial Engineering at Andrew Davidson & Co., Inc. He has developed innovative and efficient valuation models for MBS, including the Active-Passive Decomposition burnout model, the concept of prepay risk-and-option-adjusted valuation, and the method of Credit OAS and non-Monte Carlo shortcuts. His recent work focuses on the valuation of instruments exposed to credit risk, home-price modeling, and projects related to the MBS crisis. Alex has been a guest speaker at both academic and practitioner events and has published a number of papers. He holds an M.S. in Applied Mathematics from Naval Engineering Institute, Leningrad, and a Ph.D. in Control and Dynamic Systems from Leningrad State University.