Mortgage-Backed Securities

  • Moorad Choudhry
  • Didier Joannas
  • Richard Pereira
  • Rod Pienaar
Part of the Finance and Capital Markets Series book series (FCMS)


In Chapter 11 we introduced asset-backed bonds, debt instruments created from a package of loan assets on which interest is payable, usually on a floating basis. The asset-backed market was developed in the United States and is a large, diverse market containing a wide variety of instruments. The characteristics of asset-backed securities (ABS) present additional features in their analysis, which are investigated in this and the next two chapters. Financial engineering techniques employed by investment banks today enable an entity to create a bond structure from any type of cash flow; the typical forms are high volume loans such as residential mortgages, car loans and credit card loans. The loans form assets on a bank or finance house balance sheet, which are packaged together and used as backing for an issue of bonds. The interest payments on the original loans form the cash flows used to service the new bond issue.


Interest Rate Cash Flow Yield Spread Interest Rate Volatility Prepayment Risk 
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Selected Bibliography and References

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  10. Hayre, L., Mohebbi, C. and Zimmerman, T. ‘Mortgage pass-through securities’ in F. Fabozzi (ed.), The Handbook of Fixed-Income Securities, 5th edn, McGraw-Hill, 1997.Google Scholar
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  12. Pinkus, S. and Chandoha, M. ‘The relative price volatility of mortgage securities’, in F. Fabozzi (ed), Mortgage-Backed Securities: New Strategies, Applications and Research, Probus, 1987.Google Scholar
  13. Waldman, M. and Modzelewski, S. ‘A framework for evaluating treasury-based adjustable rate mortgages’, in Fabozzi, F. (ed.), The Handbook of Mortgage-Backed Securities, Probus, 1985.Google Scholar

Copyright information

© Moorad Choudhry, Didier Joannas, Richard Pereira and Rod Pienaar 2005

Authors and Affiliations

  • Moorad Choudhry
    • 1
  • Didier Joannas
    • 2
  • Richard Pereira
    • 3
  • Rod Pienaar
    • 4
  1. 1.KBC Financial ProductsUK
  2. 2.Hong KongChina
  3. 3.Nomura plcUK
  4. 4.UBS AGUK

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