What are the critical assumptions underlying the hedging of a mortgage security?
CFAI R31EOC Q 7
I believe it's about two bond hedge.作者: lcai 时间: 2011-7-11 19:26
1) Yield curve shifts used to construct hedge are reasonable
2) Prepayment model is good estimator of CF changes when yield curve shifts
3) Monte Carlo simulation assumptions are realized
4) Avg price change for small yield curve changes is good approximation of how MBS will move (may not apply to cuspy-coupon)作者: bkballa 时间: 2011-7-11 19:26
that the analyst knows algebra作者: infinitybenzo 时间: 2011-7-11 19:26
Doesn't it also assume 0 credit losses? Or is that related to some other fixed income reading?
NO EXCUSES作者: liangfeng 时间: 2011-7-11 19:26
bpdulog Wrote:
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> Doesn't it also assume 0 credit losses? Or is that
> related to some other fixed income reading?
I think it would have to assume that, as the treasuries would have zero credit risk.
