Efficient value-at-risk estimation for mortgage-backed securities

We develop an efficient Monte Carlo simulation-based methodology for value-at-risk (VAR) and sensitivity analysis of mortgage-backed securities (MBS) that employs an importance sampling technique developed for quadratic VAR models. Our approach, whose validity is derived from a fundamental result in perturbation analysis, is applicable to any analytic interest rate and prepayment model, and more generally to any path-dependent cashflows that admit analytic gradients. We compare the accuracy and computational performance of our VAR estimators with those obtained via finite-difference gradient approximation schemes.
Publisher
INCISIVE MEDIA
Issue Date
2007-03
Language
ENG
Citation

JOURNAL OF RISK, v.9, no.3, pp.37 - 61

ISSN
1465-1211
URI
http://hdl.handle.net/10203/6836
Appears in Collection
MT-Journal Papers(저널논문)
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