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After completing this reading, you should be able to:
- Describe the various types of residential mortgage products.
- Calculate a fixed rate mortgage payment, and its principal and interest components.
- Describe the mortgage prepayment option and the factors that influence prepayments.
- Summarize the securitization process of mortgage-backed securities (MBS), particularly the formation of mortgage pools including specific pools and TBAs.
- Calculate weighted average coupon, weighted average maturity, and conditional prepayment rate (CPR) for a mortgage pool.
- Describe a dollar roll transaction and how to value a dollar roll.
- Explain prepayment modeling and its four components: refinancing, turnover, defaults, and curtailments.
- Describe the steps in valuing an MBS using Monte Carlo simulation.
- Define Option-Adjusted Spread (OAS), and explain its challenges and its uses.
0:00 Introduction
1:01 Learning Objectives
2:11 Types of Residential Mortgage Products
8:37 Fixed Rate Mortgage Products (3/4)
13:13 Prepayment Risk (1/2)
16:19 The Securitization Process
19:20 Factors that Determine the Value of a MBS (3/3)
23:44 Dollar Roll (1/2)
24:35 Dollar Roll (2/2)
25:39 Monte Carlo Simulation
27:18 Option Adjusted Spread (1/2)
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