Investing in Mortgage-Backed and Asset-Backed Securities, + Website: Financial Modeling with R and Open Source Analytics

A complete guide to investing in and managing a portfolio of mortgage- and asset-backed securities

Mortgage- and asset-backed securities are not as complex as they might seem. In fact, all of the information, financial models, and software needed to successfully invest in and manage a portfolio of these securities are available to the investment professional through open source software. Investing in Mortgage and Asset-Backed Securities + Website shows you how to achieve this goal.

The book draws entirely on publicly available data and open source software to construct a complete analytic framework for investing in these securities. The analytic models used throughout the book either exist in the quantlib library, as an R package, or are programmed in R and incorporated into the analytic framework used.

• Examines the valuation of fixed-income securities—metrics, valuation framework, and return analysis
• Covers residential mortgage-backed securities—security cash flow, mortgage dollar roll, adjustable rate mortgages, and private label MBS
• Discusses prepayment modeling and the valuation of mortgage credit
• Presents mortgage-backed securities valuation techniques—pass-through valuation and interest rate models

Engaging and informative, this book skillfully shows you how to build, rather than buy, models and proprietary analytical platforms that will allow you to invest in mortgage- and asset-backed securities.

Table of Contents

PART ONE Valuation of Fixed-Income Securities
CHAPTER 1 The Time Value of Money
CHAPTER 2 Theories of the Term Structure of Interest Rates
CHAPTER 3 Fixed-Income Metrics
CHAPTER 4 The Valuation of Fixed-Income Securities
CHAPTER 5 Fixed-Income Return Analysis

PART TWO Residential Mortgage-Backed Securities
CHAPTER 6 Understanding Mortgage Lending and Loans
CHAPTER 7 Modeling Cash Flows
CHAPTER 8 Mortgage Prepayment Analysis
CHAPTER 9 The Predictive Prepayment Model

PART THREE Valuation of Mortgage-Backed Securities
CHAPTER 10 Mortgage Dollar Roll

CHAPTER 11 Relative Value Analysis
CHAPTER 12 Option-Adjusted Spread Analysis

PART FOUR Structuring Mortgage-Backed Securities
CHAPTER 13 Introduction to REMICs

CHAPTER 14 Stripped Mortgage-Backed Securities
CHAPTER 15 Sequentially Structured REMIC
CHAPTER 16 Planned Amortization Class (PAC) and Companion REMICs

CHAPTER 17 Sequential IO REMIC
CHAPTER 18 PAC-Floater-Inverse Floater REMIC
CHAPTER 19 Accrual REMIC Z-Bond

PART FIVE Mortgage Credit Analysis
CHAPTER 20 Mortgage Default Modeling
CHAPTER 21 The Predictive Default Model
CHAPTER 22 The Basics of Private-Label MBS
CHAPTER 23 Sizing Mortgage Credit Enhancement