Reading 59: Valuing Mortgage-Backed and Asset-Backed Securit simulation, 2011, security, following, difficulty

土豆妮

Session 15: Fixed Income: Structured Securities
Reading 59: Valuing Mortgage-Backed and Asset-Backed Securities

LOS b: Describe the Monte Carlo simulation model for valuing a mortgage-backed security.

 

 

Which of the following is a difficulty in valuing collateralized mortgage obligations (CMOs) using Monte Carlo simulation or any other methodology? The issuer has distributed:

A) both the prepayment risk and interest rate risk equally into different tranches.

B) both the prepayment risk and interest rate risk unequally into different tranches.

C) the prepayment risk into different tranches.

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Some of the tranches are more sensitive to prepayment risk and interest rate risk than the collateral, while others are much less sensitive.