The Study On The Investment Value Of Mortgage-Backed Securities Of Construction Bank Of China

Asset-Backed Securities (ABS) and Mortgage-Backed Securities (MBS) have become the booming areas in structured financial products world wide. In US financial market, many such products have been designed with various term structures and interest rate structures due to different structuring requirement. Recently, ABS and MBS have entered our local market (RMB). Therefore, in-depth research and analysis on investment value of RMBS are of paramount importance at this stage.This essay mainly uses normative economics method to demonstrate its viewpoints. First, a brief overview of the securitization background and related economic theories is introduced, along with the comparison of different ABS analysis methods including net effective margin analysis, discount margin analysis, OAS(Option Adjusted Spread) analysis and OAM(Option-Adjusted Margin) analysis. Next, a thorough analysis of CCB's RMBS deal is conducted on the characteristics of the underlying assets, the deal's structure, cash flows and the deal's positive factors as well as risk factors. It also uses econometrics method to carry out the pricing analysis of RMBS. It chooses arbitrage-free model to simulate the short term interest rate path, determines reasonable OAS which reflects each MBS tranche's credit risk and liquidity risk premium with coupon rate and cash flow fixed, gets the proper quoted spread through trial-and-error method. Through sensitive analysis, it deducts the critical conclusions: OAS is the most crucial element among all kinds of pricing factors. The theoretic quoted spread will not be less than the OAS and their discrepancy magnifies with increasing OAS. Other pricing factors only matter when OAS is relative wide. While OAS is wide, the interest rate cap is more probable to be triggered, which will accelerate the prepayment rate. The faster the prepayment rate, the more favorable to the investors and the lower the theoretical quoted spread. On the other hand, the more sensitive the adjustment of loan rate which determines the interest rate cap to the market interest rate, the more favorable to the investors and the lower the theoretical quoted spread.This paper emphasizes the combination of theoretical and actual practice, comprehensively utilizes a variety of economic models and analytical tools. It is also understood that there still exists some area of improvement to be further studied.