• 2365 views

    Lec 18 - Modeling Mortgage Prepayments and Valuing Mortgages

    "Lec 18 - Modeling Mortgage Prepayments and Valuing Mortgages" Financial Theory (ECON 251) A mortgage involves making a promise, backing it with collateral, and defining a way to dissolve the promise at prearranged terms in case you want to end it by prepaying. The option to prepay, the refinancing option, makes the mortgage much more complicated than a coupon bond, and therefore something that a hedge fund could make money trading. In this lecture we discuss how to build and calibrate a model to forecast prepayments in order to value mortgages. Old fashioned economists still make non-contingent forecasts, like the recent predictions that unemployment would peak at 8%. A model makes contingent forecasts. The old prepayment models fit a curve to historical data estimating how sensitive aggregate prepayments have been to changes in the interest rate. The modern agent based approach to modeling rationalizes behavior at the individual level and allows heterogeneity among individual types. From either kind of model we see that mortgages are very risky securities, even in the absence of default. This raises the question of how investors and banks should hedge them. 00:00 - Chapter 1. Review of Mortgages 03:20 - Chapter 2. Complications of Refinancing Mortgages 19:26 - Chapter 3. Non-contingent Forecasts of Mortgage Value 28:40 - Chapter 4. The Modern Behavior Rationalizing Model of Mortgage Value 54:07 - Chapter 5. Risk in Mortgages and Hedging Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses This course was recorded in Fall 2009.

    Video is embedded from external source so embedding is not available.

    Video is embedded from external source so download is not available.

    Here is the next lecture for this course

    Watch NEXT
    LECTURE
    2990 views     3D Modeling Pipeline for Archaeological Visualization

    Lec 19 - History of the Mortgage Market: A Personal Narrative

     01:19:18
    Lecture List | Course Details | Contents | Related

    No content is added to this lecture.

    Go to course:

    This video is a part of a lecture series from of Yale