English

Endogenous Current Coupons

Pricing of Securities 2015-10-08 v1 Mathematical Finance

Abstract

We consider the problem of identifying current coupons for Agency backed To-be-Announced (TBA) Mortgage Backed Securities. In a doubly stochastic factor based model which allows for prepayment intensities to depend upon current and origination mortgage rates, as well as underlying investment factors, we identify the current coupon with solutions to a degenerate elliptic, non-linear fixed point problem. Using Schaefer's theorem we prove existence of current coupons. We also provide an explicit approximation to the fixed point, valid for compact perturbations off a baseline factor-based intensity model. Numerical examples are provided which show the approximation performs remarkably well in estimating the current coupon.

Keywords

Cite

@article{arxiv.1510.02010,
  title  = {Endogenous Current Coupons},
  author = {Scott Robertson and Zhe Cheng},
  journal= {arXiv preprint arXiv:1510.02010},
  year   = {2015}
}

Comments

2 figures

R2 v1 2026-06-22T11:14:57.947Z