Mortgage-Backed Securities Assessment Management of Risk

Training Provided by London Financial Studies Course Outline This intensive and participative 2-day programme covers the key elements of mortgage backed securities. Terminology, procedures, models and applications of MBS concepts will be included along with the latest products used for hedging the risks and for developing new markets.The first day will cover the risk factors and prepayment models and day two will deal with balance guaranteed swaps, property derivatives and equity release mortgages. Who the Course is for * Risk Managers * Portfolio Managers * Hedge Fund Managers * Structured Product Desks, Product Controllers and Researchers * Rating agencies involved with mortgage backed securities Prior Knowledge * Basic knowledge of financial markets and instruments (bonds, swaps, caps, floors, options) in terms of mechanics and elementary pricing. * Basic knowledge of fixed income (yield curve, forward rates, forward curve, Libor contracts, discounting factors, interpolation, discounting cash flows). * Elementary mathematics and statistics (probability distributions, mean, variance, correlation coefficient, quantiles, regression modelling and analysis, model selection with t-tests). * Microsoft Excel.

Mortgage-Backed Securities Assessment Management of Risk Day One
Main Concepts and Risk Drivers

* Facts and fallacies about yield curve modelling
* Sensitivity measures; duration measures
* The determinants of main drivers of MBS risk (prepayment, default, arrears)

P&L hedging

* Interest rate risk hedging strategies for asset backed portfolios with Libor-swap instruments

Workshop: Designing hedging strategies for a consumer loan portfolio
Understanding Prepayment and Default Risk

* Traditional models: Arctan, Richard and Roll (Goldman Sachs)
* Financial engineering models and the OAS approach
* Econometric models: logistic regression (and why this is wrong ) and survival models for loan data with credit information and their implementation
* The latest prepayment model (Fabozzi, Kalotay and Yang) to value mortgage pools and agency mortgage-backed securities

Workshop: Implementing Richard and Roll and Fabozzi, Kalotay and Yang in Excel
Value-at-Risk and Expected Shortfall Estimation for MBS

* Monte Carlo methodology
* Hull-White two-factor model for interest rates
* Richard and Roll (GS) model for prepayment
* Delta-gamma methodology for VaR
* Expected Shortfall calculations

Day Two
Balance Guaranteed Swaps (BGS)

* Product description
* Why BGS is important
* Pricing with Bermudan swaptions
* Pricing with floors
* Pricing with caps
* Hedging limitations
* Choosing the bands for hedging
* What can go wrong

Workshop: Dynamic hedging and risk management of balance guaranteed swaps
Other Types of Structured Swaps

* Cross-currency balance guaranteed swap
* Libor-BBR swaps

Reverse Mortgages: The Next RMBS Market?

* Interest rate risk
* Real estate risk
* Mortality risk, mortality tables and calculations
* Morbidity Risk
* Prepayment risk
* Pricing with actuarial methods
* A Monte Carlo simulation valuation framework

Workshop: Pricing a reverse mortgage with Monte Carlo
Course Revision

About The Training Provider: London Financial Studies

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