Generic fixed-rate mortgage pools and balloon mortgages have pass-through certificates (PC) that typically have embedded call options in the form of prepayment.
This example illustrates how the Financial Toolbox™ and Financial Instruments Toolbox™ are used to price a level mortgage backed security using the BDT model.
The option-adjusted spread (OAS) is an amount of extra interest added to the reference zero curve.
When fewer than 360 months remain in the pool, the applicable PSA prepayment vector is "seasoned" by the pool's age.
Pools with different numbers of coupons remaining require a specific prepayment matrix format.
This example shows how to model prepayment in MATLAB® using functionality from the Financial Instruments Toolbox™.
Mortgage-backed securities (MBSs) are a type of investment that represents ownership in a group of mortgages.