Consider the following MBS pass through with principal $300 million The original mortgage pool has a WAM 360 months (30 years) and a WAC 7 00 The pass through security pays a coupon equal to 6 5 Instead of the yield curve, you are given the following parameters from the extended Nelson Siegel model...

Follow the lines of Example 82 and Table 63 Plug in the NS parameters to compute the discount curve ...

Consider the following MBS pass through with principal $300 million. The original mortgage pool has a WAM

Question:

Consider the following MBS pass through with principal $300 million. The original mortgage pool has a WAM = 360 months (30 years) and a WAC = 7.00%. The pass through security pays a equal to 6.5%. Instead of the yield curve, you are given the following parameters from the extended Nelson Siegel model: (0 = 6,278.30, (1 = -6,278.25, (2 = -6,292.47, (3 = 0.04387, (1 = 27,056.49, and (2 = 30.48. That is, to compute the continuously compounded zero yield with T, the formula is

The discount with maturity T is then Z(0, T) = e-r(0,T)(T.
(a) What is the price of the pass through? Assume a constant PSA = 150%.
(b) Compute the duration of this security assuming that the PSA remains constant at 150%.
(c) Compute the effective duration of this security assuming that the PSA increases to 200% if the term structure shifts down by 50 basis points, while it decreases to 120% if the term structure shifts up by 50 basis points. Comment on any difference compared to your result in part (b).
(d) Compute the effective convexity of this security under the same PSA assumptions as in part (c). Interpret your results.

Consider the following MBS pass through with principal $300 million.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...