A Study On The MBS Pricing Model Based On Binomial Model

MBS is regarded as the result of securitization of the ripe capital market, It has good prospects in our country. With the appearance of 2005-1 Jianyuan Mortgage-Backed Securities, many commercial banks launch their own MBS and issue the security one after another. Every commercial bank generally selected CMO as the domestic MBS designing pattern, while other patterns such as MPT and SMBS are not in practice. OAS is the most popular MBS products pricing methods in our country at present, but there is a limitation while dealing with holder's prepayment situation of deriving securities by using this pricing method.After analyze various kinds of MBS pattern and price methods in and out of our country, this thesis combine the problem exist in domestic MBS issuance pattern and pricing method at current situation, probe into design new MBS pattern such as MPT, and use binomial model to solve the problem of prepaying and other problem .Particularly, this thesis includes six chapters as following:Chapter 1 introduces the aims and significance of this study, research contents, research approach and technological route of the thesis, and carry on the survey to the research document of domestic and international MBS pricing.Chapter 2 describes the problem of MBS pricing method. Introduced pattern and pricing method of MBS in mature markets at first, then overview domestic MBS pricing method in current situation, then analyze existing problem of MBS pricing method of our country. The problem existed includes: MBS patterns is so few, prepayment model and interest rate path prediction method are not accurate, and prepayment factor is not been taken into account in the pricing model.Chapter 3 discusses the route to solve the problem in MBS design and pricing of our country at the present stage. The route include: Firstly, attempt issue MPT to extend MBS pattern in our country. Secondly, develop a econometric model which can predict the prepayment based on historical data of our own country. Thirdly, applying bootstrap method to predict interest rate of our country based on bond in our capital market. Fourthly, select binomial model to pricing MBS of our country, to resolve the shortage of Option Adjusted Spread method.Chapter 4 constructs MBS pricing model based on Binomial Model. After introduced Binomial Model, and take account of option character of mortgage prepayment, this chapter put forward a MBS pricing model which is based on Binomial Model. Specific pricing process is as follow:Firstly, predicts the cash flow of the mortgage pool. Applying econometric model construct in chapter 3 to predict the prepayment rate, then calculate the cash flow by applying the prepayment rate.Secondly, calculates the discount rate. Calculating yield to maturity and the future rate by applying bootstrap method introduced in chapter 3, then calculate probability tree and rate tree by using no arbitrage theory. The rate tree is corresponding to discount rate of each branch.Thirdly, completes the pricing process by using binomial model. Take account of both prepayment right and the probability of the rate, calculating the value of each branch, completing the pricing process finally.Chapter 5 takes MPT as a example. This chapter applies binomial model to price MBS in the example.Chapter 6 gives the conclusion and perspective of this thesis.