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I need to model MBS coupon stack prices. It would not be difficult to create something from scratch, but I don't want to re-invent the wheel (and explain why I did) if a somewhat standard model already exists. By "somewhat standard", I mean models like those for the term structure (e.g. Nelson-Siegel / Nelson–Siegel–Svensson or some newer stuff by Diebold et al).

I would appreciate any pointers, no matter how obscure.

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  • $\begingroup$ Hi, good question but could you please elaborate a little more on what is the payoff of a " MBS coupon stack". Regards $\endgroup$ – TheBridge Feb 9 '11 at 21:04
  • $\begingroup$ @TheBridge: The MBS coupon stack is the series of prices for TBA (to-be-announced) MBS at various coupons. It's not a security, it's a set of securities (like the term structure is a set of bonds over different maturities). $\endgroup$ – Joshua Ulrich Feb 11 '11 at 20:11
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I am not familiar with any formal "models" of the TBA coupon stack similar to Nelson-Siegel, but we typically compare the TOAS and ZV (Z-spread) curves as a function of coupon and issuer/maturity. We also examine relative value between these curves and various seasoned loan pools. The curve itself is very erratic, and plotting it often gives a good impression of which particular points on the curve may be over/under-valued. I have dealt with a number of market participants (traders) in this area over the years, and it seems like much is still done by guess-timating.

That said, there are a few references on TBAs generally by Citigroup, JPMorgan, the Fed and probably others. I couldn't find a reference to a model of the TBA coupon stack in any of these.

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