FE580 Securitization of Financial Assets
Course Catalog Description
Students will learn the techniques needed to understand securitization.
At the end of this course, students will be able to:
- Value fixed-income securities.
- Understand and measure risk associated with such securities, i.e. credit risk, interest rate risk and prepayment risk.
- Have a grasp on how to hedge against some of those risks, using financial derivatives.
- Understand corporations and banks' incentives for using securitization.
- Use computer simulation for financial analysis.
- Use a Bloomberg screen and interpret data associated with asset-backed securities transactions.
The Securitization Markets Handbook: Structures and Dynamics of Mortgage-and Asset-Backed Securities, Second Edition, by Charles Austin Stone and Anne Zissu - Wiley 2012.
H.W 50% Project 50%
|Week 1||Bond and Mortgage Basics Bond Valuation||Ch. 2|
|Week 2||Price/Yield Relationship Fixed-Rate Mortgages Prepayment Option||Ch. 1 & Ch. 2|
|Week 3||Macauley and Modified Duration, Convexity, Risk Exposures||Ch. 2|
|Week 4||Sub-Prime Mortgages,Securitization, The Liquidity problems of August 2007||Ch. 1 & Ch. 9|
|Week 5||From the Primary to the Secondary Mortgage Market The Agency Market
The Private-Label Market Agency and Nonagency Market Segments Compared Credit Risk Considerations Mortgage and Funds Flow in the Secondary Market Industry Illustration Pricing of Newly Originated Mortgages Freddie Mac Sample Purchase Pricing Mortgage Pricing from the Bank's Perspective
Page 3-18 Page 18-25 Page 72-77 Ch. 10
|Week 6||Modeling Cash Flows of Pass-Through, PO, and IO Securities
Information Set Model Cash Flow over Time Effective Duration Effective Convexity
Page 121-129 Chapter 3 Page 109-111
|Week 7||Case Study: A Pass-Through Security Issued by FNMA
Prepayment Standard Assumption Levels S-Curve Prepayment Function Weighted Average Life and Different Spreads Measurements Spread I, Static Spread (Spread Z), and Spread S
|Week 8||Option-Adjusted Spread
Negative Option Cost Case Study: Principal-Only and Interest-Only Securities PO Strip IO Strip
|Week 9||CMOs, PACs, Floaters, and Inverse Floaters
Collateralized Mortgage Obligations
|Week 10||Planned Amortization Class
Floaters and Inverse Floaters CDO-Squared
|Chapter 4 Page 141-154
|Week 11||Credit Risk
Direct Financing of Risk versus Buying a Financial Guaranty A Financial Guaranty Is Not an Insurance Contract Selecting Efficient Forms and Levels of Credit Enhancement Relative Value in Credit-Enhancement Structures
|Chapters 10 and 11|
|Week 12||Investment, Speculation, and Hedging
Target Investment Subordinate Segment of Private-Label MBSs Interest-Rate Risk
|Week 13||Reinvestment of Cash Flow
Interest-Only Strips as a Hedging Tool Combining Bonds and IOs Hedging FNMA 9.5 Percent Pass-Through Securities with IO Securities Hedging FNMA 9.5 Percent Pass-Through Securities with IO Securities Principal-Only Strips as a Hedging Tool Inverse Floaters as a Hedging Tool Hedging CMOs with Options on Treasury Bonds
|Week 14||Final Exam|