Mastering MBS and ABS: From Basics to Advanced Analytics

Mastering MBS and ABS: From Basics to Advanced Analytics free download

From Fundamentals to Advanced Concepts in Securitizing, Trading and Investing in Mortgage and Asset-Backed Securities

Course Description: From Fundamentals to Advanced Concepts in Securitizing, Trading, and Investing in MBS and ABS

This course offers a comprehensive exploration of Mortgage-Backed (MBS) and Asset-Backed Securities (ABS), guiding participants from foundational principles to sophisticated analytical frameworks. The curriculum is meticulously designed for finance professionals, executives, traders, and students seeking deep insights into the securitization market.

Key Learning Objectives:

1. Understanding Securitization: Learn how securitization transforms illiquid assets into tradable securities, redistributes risk, and enhances market liquidity.

2. Asset Structures: Differentiate between MBS and ABS, including their structures, cash flows, and variants like Collateralized Mortgage Obligations (CMOs) and Collateralized Loan Obligations (CLOs).

3. Risk Analysis: Master the evaluation of prepayment, credit, and interest rate risks inherent in MBS and ABS.

4. Advanced Valuation Techniques: Explore pricing strategies using static and stochastic models, Monte Carlo simulations, and Option-Adjusted Spreads (OAS).

5. 2008 Financial Crisis Insights: Analyze the role of securitization in the crisis, lessons learned, and post-crisis regulatory changes.

Detailed Outline:

1. Introduction to MBS, ABS, and Securitization

• Overview of securitized products.

• Historical context and market significance.

2. Mechanics of Securitization

• Asset pooling and Special Purpose Vehicles (SPVs).

• Tranching, credit enhancements, and the role of key entities like Fannie Mae and Ginnie Mae.

3. Mortgage-Backed Securities (MBS)

• Types: Pass-Through MBS, CMOs, and To-Be-Announced (TBA) contracts.

• Valuation and servicing dynamics.

4. Asset-Backed Securities (ABS)

• Structures and underlying asset classes, from credit card receivables to auto loans.

5. Risk Analysis in MBS and ABS

• Prepayment risk: modeling borrower behavior and its impact on cash flows.

• Interest rate sensitivity and convexity.

• Credit risk: assessing default probabilities and severity.

6. Advanced Prepayment and Cashflow Modeling

• Prepayment measures such as CPR, SMM and PSA.

• Behavioral and econometric models and their key drivers and features.

• Current Coupon Rate which is not quoted in the market but must be derived based on SOFR swap rates.

• Application of tools like Intex for cash flow analysis.

7. Pricing and Analytics

• Static vs. stochastic pricing methods.

• Option Adjusted Spread (OAS) to compensate for unhedged risks.

• Monte Carlo standard errors and convergence.

• Convexity measure and in particular how negative convexity impacts portfolio returns and risk management.

8. The 2008 Financial Crisis

• Examining the systemic risks and market failures caused by securitization.

• Regulatory changes and their impact on securitization practices.

9. Conclusion and Applications

• Recap of critical concepts.

• Discussion of modern trends and technological advancements in MBS/ABS trading.

Course Delivery:

This program integrates theoretical insights with practical methodologies, emphasizing the development of analytical skills and technical proficiency. Participants will hear about advanced modeling techniques, computational tools, and dynamic simulations to explore the intricacies of MBS and ABS. A Python programs is included for MBS pass-through cashflow calculations to deepen understanding of cashflow generations and prepayment speeds.

Whether you are a trader or risk manager aiming to enhance your analytical toolkit, an executive seeking to grasp structured finance's complexities, or a student aspiring to enter the field, this course equips you with the expertise and resources to excel in a competitive financial landscape.