Question
The ABX index was established so as to make prices in the mortgage-backed securities (MBS) markets more transparent. a) What is the ABX index? Suppose
The ABX index was established so as to make prices in the mortgage-backed securities (MBS) markets more transparent.
a) What is the ABX index?
Suppose the ABX-AAA has a coupon of 40 basis points. The initial index value is 100.
b) An investor wants to buy insurance on the reference bonds with notional amount (i.e. par value) of $10 million. How much does he has to pay for this bond insurance?
Suppose the index drops from 100 to 90.
c) What is the price of the insurance now?
d) What can investors learn from observing a decline in the index value? And what might they conclude about the value and risks of MBS in general?
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Theories Of Value From Adam Smith To Piero Sraffa
Authors: Ajit Sinha
2nd Edition
0429807716, 9780429807718
