July 23, 1998 Notice:
There will be no
class on June 25th, 1998 due to an NYU Stern School of Business presentation
in Boston.
Course Objectives: This course is designed to introduce students to mortgage-backed securities primarily from an application of fixed income theory perspective. The student is therefore expected to be familiar with the basic concepts of fixed income securities including the term structure of interest rates and valuation techniques.
Texts:
Lewis (L), 1989, Liar's Poker,
Penguin Books, NY, NY
Fabozzi (F), 1995, Handbook of
Mortgage-Backed Securities, 4th Edition, Probus Publishing, Chicago,
IL
Fabozzi and Modigliani (FM), 1992, Mortgage & Mortgage-Backed Securities Markets, Harvard Business School Press, Boston, MA (ðRecommended Reading)
Grading:
| Class Participation | 5% |
| Homework | 20% |
| Final Exam* (Exam is given on the last
day of class)
July 23, 1998 |
75% |
FM Chapter 2 - The Development of the Secondary Mortgage Market (ð)
2 Mortgage Products
F Chapter 2 - Mortgages
FM Chapter 5 - The Traditional Mortgage
(ð)
FM Chapter 6 - The Mismatch
Problem and the Creation of Variable-Rate Mortgages (ð)
FM Chapter 7 - The Tilt
Problem and the Creation of Other Mortgage Instruments (ð)
3 Creation of Mortgage-Backed Securities
Lewis, Liar's Poker (entire book)
4 Mortgage Pricing Models
4.1 Pricing the Call Option
4.2 Prepayment Models
F Chapter 8 - Mortgage Prepayment
Modeling: I
F Chapter 9 - Mortgage Prepayment
Modeling: II
F Chapter 10 - Modifying
the PSA Curve for Newly Issued Mortgage Pass-Throughs
F Chapter 12 - An Unbiased
Method of Applying Historical Prepayment Speeds to Project Future Cash
Flows
FM Chapter 10 - Factors
Affecting Prepayment Behavior (ð)
5 Mortgage Backed Bonds
6 Mortgage Pass-Throughs
6.1 Characteristics and Mechanics of MPTs
F Chapter 3 - Mortgage Pass-Through
Securities
F Chapter 4 - Agency Adjustable-Rate
Mortgage Securities
FM Chapter 8 - Features
of Passthrough Securities (ð)
FM Chapter 9 - Price and
Yield Conventions for Passthroughs (ð)
7 Stripped Mortgage Backed Securities: IO Strips and PO Strips
F Chapter 14 - Stripped Mortgage-Backed
Securities
F Chapter 15 - Synthetic
Mortgage-Backed Securities
FM Chapter 11 - Derivative
Products: CMO and Stripped MBS (ð)
8 Collateralized Mortgage Obligations (CMOs)
8.1 Mechanics of CMO
F Chapter 16 - Introduction
to Collateralized Mortgage Obligations
F Chapter 17 - Prospects
of Derivative Mortgage Securities
F Chapter 22 - CMO Residuals
8.2 Techniques for Analyzing CMOs: Static Cash Flow Yield and Option Adjusted Spreads
F Chapter 28 - A Comparison
of Methods for Analyzing Mortgage-Backed Securities
F Chapter 29 - Introduction
to the Option-Adjusted Spread Method
F Chapter 30 - A Further
Look at Option-Adjusted Spread Analysis
F Chapter 31 - Consistent,
Fair and Robust Methods of Valuing Mortgage Securities
F Chapter 32 - Towards a
New Approach to Measuring Mortgage Duration
F Chapter 33 - Duration
and Convexity Drift of CMOs
FM Chapter 12 - Review of
Fixed-Income Analysis (ð)
FM Chapter 13 - Methodologies
for Valuing Mortgage-Backed Securities (ð)
8.3 Types of CMOs
F Chapter 18 - The Effect
of PAC Bond Features on Performance
F Chapter 20 - Companions
with Schedules
9 Floaters and Inverse Floaters
F Chapter 21 - Inverse Floaters
and Inverse IOs
F Chapter 34 - Understanding
Inverse Floater Pricing
10 NonAgency/Private Label Mortgage-Backed Securities
F Chapter 23 - Whole-Loan CMOs
11 Commercial Mortgage-Backed Securities
F Chapter 25 - Commercial
Mortgage-Backed Securities
F Chapter 26 - Quantifying
Credit Risk in CMBS
F Chapter 27 - New Ways
to Model Default Scenarios for Income Property Loans