"Mortgage Pool Risk and Return", Barra Newsletter, May/June 1991, p8
Topic: Asset Pricing and Valuation |
Asset Class: Fixed Income
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When constructing portfolios, institutional investors typically think of mortgages in terms of "generics," (aggregations of large numbers of mortgage pools by coupon and issue year). Mortgage valuation has similarly been centered on generics. But investors cannot purchase generics; they can only purchase the individual mortgage pools. How closely can mortgage pools track generics?(1) Little work has been done in this area, but we have conducted some preliminary research into the interesting questions surrounding this subject. What is the relationship between pool-specific prepayment and return? How can we measure pool-specific risk, or how closely will the return to a mortgage pool track the generic? What is the best way to track a generic? And can we find factors that forecast the differences in future prepayment of pools within a generic?
Publication:
Authors: MULLER Peter
