Valuing Fixed-Income Options and Mortgage-Backed Securities with Alternative Term Structure Models
To value mortgage-backed securities and options on fixed-income securities, it is necessary to make assumptions regarding the term structure of interest rates. We assume that the multi-factor fixed parameter term structure model accurately represents the actual term structure of interest rates, and that the values of mortgage-backed securities and discount bond options derived from such a term structure model are correct. Differences in the prices of interest rate derivative securities based on single-factor term structure models are therefore due to pricing bias resulting from the term structure model. The price biases that result from the use of single-factor models are compared and attributed to differences in the underlying models and implications for the selection of alternative term structure models are considered. Copyright Blackwell Publishers Ltd 1999.
Year of publication: |
1999-01
|
---|---|
Authors: | Chen, Ren-Raw ; Maris, Brian A. ; Yang, Tyler T. |
Published in: |
Journal of Business Finance & Accounting. - Wiley Blackwell, ISSN 0306-686X. - Vol. 26.1999-01, 1-2, p. 33-55
|
Publisher: |
Wiley Blackwell |
Saved in:
freely available
Saved in favorites
Similar items by person
-
Valuing Fixed-Income Options and Mortgage-Backed Securities with Alternative Term Structure Models
Chen, Ren-Raw, (1999)
-
The Effect of Exercise Date Uncertainty on Employee Stock Option Value
Maris, Brian A., (2003)
-
Interest-only and principal-only mortgage strips as interest-rate contingent claims
Maris, Brian A., (1996)
- More ...