Mortgage Valuation Models: Embedded Options, Risk, and Uncertainty
Andrew Davidson and Alexander Levin, Jun 2014
Mortgage-backed securities (MBS) are among the most complex of all financial instruments. Analysis of MBS requires blending empirical analysis of borrower behavior with the mathematical modeling of interest rates and home prices. Over the past 25 years, Andrew Davidson and Alexander Levin have been at the leading edge of MBS valuation and risk analysis.
Mortgage Valuation Models: Embedded Options, Risk, and Uncertainty contains a detailed description of the sophisticated theories and advanced methods that the authors employ in real-world analyses of mortgage-backed securities. Issues such as complexity, borrower options, uncertainty, and model risk play a central role in the authors’ approach to the valuation of MBS. The coverage spans the range of mortgage products from loans and TBA (to-be-announced) pass-through securities to subordinate tranches of subprime-mortgage securitizations. With reference to the classical CAPM and APT, the book advocates extending the concept of risk-neutrality to modeling home prices and borrower options, well beyond interest rates. It describes valuation methods for both agency and non-agency MBS including pricing new loans; approaches to prudent risk measurement, ranking, and decomposition; and methods for modeling prepayments and defaults of borrowers.
The authors also reveal quantitative causes of the 2007-09 financial crisis and provide insight into the future of the U.S. housing finance system and mortgage modeling as this field continues to evolve. This book will serve as a foundation for the future development of models for mortgage-backed securities.
The Mortgage-Backed Securities Workbook (Reissue)
Andrew Davidson and Michael Herskovitz, Nov 2014
First published in 1996 as a companion to the bestselling Mortgage-Backed Securities by Andrew Davidson and Michael Herskovitz, this workbook helped train a generation of new analysts, providing practical examples, hands-on exercises and problems to assist in mastering the intricacies of the mortgage-backed securities market. For almost two decades, it provided an introduction to MBS analysis, demonstrating not only how to run cash flow models but also how to construct them.
While the demand for the workbook extended beyond its in-print status, the publication of Davidson and Levin's new book, Mortgage Valuation Models: Embedded Options, Risk and Uncertainty, seemed the perfect occasion for the reissue of this classic workbook. Though many of the tools and concepts described in the new book did not exist and were hardly imaginable in the early 1990s, the basic calculations remain the same, and the workbook remains a great entry into the world of MBS analysis.
This is a must-have resource for any financial professional wishing to obtain a more comprehensive understanding of this important market, providing hands-on exercises for the mastery of mortgage-backed securities.