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Suppose there is a $400 million mortgage pass-through security with a 7.5% pass-through rate, a weighted average coupon of 8.125% and a weighted average maturity of 357 months, how to compute the cash flows for the next two months assuming a 100 Principal Securities Association(PSA)?

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  • $\begingroup$ Is this homework or self study? $\endgroup$ – kurtosis Sep 4 '20 at 15:33
  • $\begingroup$ @kurtosis I am trying to study from the Fabozzi text book. Since this is a US based concept, I am not quite sure as to whether I should use the Single monthly mortality rate or the conditional prepayment rate? Could you provides some leads as to how to approach it? $\endgroup$ – Chandramouli Raman Sep 4 '20 at 17:20
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    $\begingroup$ I know Chapter 23 of A Quantitative Primer on Investments with $R$ has code for a CMO, so you could modify that to have everything in one tranche. $\endgroup$ – kurtosis Sep 4 '20 at 21:14

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