The Exploration To The MBS Pricing Model In China

The market of MBS has been developing since1970s and soon it has become one of the most important financial derivatives in those developed countries. According to our conditions in China, the full implementation of launching MBS in the individual housing loan market is imperative. Actually, there exist lots of data denoting that currently the individual housing loan market’s prosperity is very helpful to promote the issuing process of MBS. It’s reported that from1998to2007,the total housing loan has increased63.4times, the amount changing from42.6billion to2700billion.However,the high increasing rate of the housing loan amount implies the high risk banks undertake now. Thus, one of the methods to diversify the risk is to promote the process of launching MBS.In fact, the structure of this paper is very clear and it, with the pricing of MBS centered, could be divided into five parts:The first section is mainly to introduce this paper’s researching background and summarize the current research on this topic. Then in the second section, the paper made a systematic introduction about the process of launching MBS, in order to prepare for the following pricing model of MBS. The third section then illustrated some traditional and universal pricing models of MBS. Then it comes to the most principal part——the forth section and in this section, the paper creatively constructed the MBS pricing model with Chinese characteristics.In my eyes, the paper has some advantages and disadvantages, which could be listed as the following:Firstly, the paper is based on lots of papers at home and abroad, so it provided a very detailed and wide knowledge about the securitization of housing loans.Besides, on the core aspect of MBS pricing, the paper creatively constructed a prepayment model with Chinese characteristics, based on OTS model abroad in the fourth section. What’s more, limited to the scarcity of housing loan data in China, the paper used a detailed example to simulate the whole process of MBS pricing and ensured the feasibility of the model. The last but not the least is that at home the paper first assumes the MBS spread is not fixed but stochastic and gives its two-factor model and its adjusted one.However, the paper also has some aspects which need to be ameliorated. For instance, there is no index to identify whether the constructed model works well or not. Additionally, in the simulation of pricing section, the analysis of the sensitivity is also a critical part which is not covered in this paper.