Fast and accurate valuation of mortgage-backed securities has been an ongoing challenge for quants over the past 30 years. Almost all current models are empirical models fitted to past history, which have needed to be revamped every time the mortgage market moves in a new direction. I will describe a new valuation model, developed jointly with Andrew Kalotay, that uses an approach consistent with the current practice of using arbitrage-free risk neutral valuation models for interest rate derivatives and other fixed income securities. ( Slides)
Speaker: Deane Yang, Polytechnic University