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Soft question...hopefully.

I am working on a swaption hedging strategy. Part of this strategy calls for a forward looking indication of changes in implied volatility, using 1m10y implied as a proxy for movements across the rest of the surface. I came across the following paper which suits my scenario and approach well:

Mortgage Hedging and Rate Volatility; Roberto Perli & Brian Sack

Perli and Sack use three variables to test whether the hedging activities of MBS holders has a material impact on swap rate volatility. In summary, they specify a Ordinary Least Squares regression with expected (implied) volatility of the 10Yr swap rate as the dependent against three explanatory variables:

  1. The Convexity of the MBS Market
  2. The Duration of the MBS Market
  3. The Amount of Mortgage Refinancing

I have Terminal access so I can use the MBA US Refinancing Index for the Refinancing independent. Perli and Sack state that their data set includes weekly observations from "the effective convexity and duration of the Merril-Lynch master mortgage index" but I can't find references to this index anywhere.

I've tried various other searches for a composite MBS Market Duration/Convexity index, to no avail. Any ideas as to where I could get data for the MBS Duration/Convexity inputs?

Thanks!

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  • $\begingroup$ Merrill Mortgage Master is M0A0 <<Index>> on bloomberg; you may need to get this index turned on for you to gain access via your terminal $\endgroup$ – AlRacoon May 2 at 17:39
  • $\begingroup$ Awesome, thanks! $\endgroup$ – Thomas Boyd May 2 at 17:47
  • $\begingroup$ Merrill's indices have been sold to ICE; the rebranding might be the source of confusion. $\endgroup$ – Helin May 3 at 2:15
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    $\begingroup$ @Helin...indeed it was. $\endgroup$ – Thomas Boyd May 3 at 13:03
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I'd be curious if you can get the convexity for the Merrill index. Bloomberg/Barc MBS index only shows duration on the terminal. That index would be my first choice. Regardless, it might be most useful to calc the empirical convexity yourself to study a swaption hedging strategy. Additionally, keep in mind the regime shifted dramatically since Fannie and Freddie (once the largest convexity hedgers in swaptions by far) became smaller.

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  • $\begingroup$ M0A0 INDEX IND4 <GO>; you have to scroll down to see Effective Convexity. $\endgroup$ – Thomas Boyd May 3 at 13:05

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