Mortgage-backed Securities Pricing Method

Mortgage-backed Securities (MBS) is the product of international financial innovation and the tool to enhance the liquidity of our banks' assets and decrease finance risks. Based on introduction of overseas Asset-Backed Securitization developing tendency, the article analyses systematically MBS and prospect and difficulties of its development in our country and put emphasis on analyzing the process of securitization, determining interest rate form of MBS, cash flow and influence elements of MBS price. Based on these, considering prepayment' influence on MBS' price, the following three pricing methods are researched on deeply. Referring to the experiences of foreign countries, the pricing method based on prepayment pattern is given; considering the influence of interest rate on prepayment, different interest rate simulation pricing methods are set up, which is on the basis of different interest rate term structure model; in view of interest rate and different incentive threshold of mortgager, a interest rate incentive function simulation model is established to price MBS. At last, these pricing methods are compared and the difference between theory price and market price is further discussed.The paper is aimed to provide useful reference for the development of MBS in our country in future.