Mortgage Valuation Models: Embedded Options, Risk, and Uncertainty (Financial Management Association Survey and Synthesis)
"Mortgage Valuation Modelsdelivers much more than its title suggests. It explores the key aspects of the mortgage market that ultimately were a trigger of the financial crisis. It offers potential policy solutions to remedy deficiencies in the current market structures. Most of all, though, alongside its very rigorous treatment of the technical details of mortgage models, it provides frequent illustrations and guidance that will help readers to avoid having unrealistically high expectations of their mortgage models." --Mark Adelson, Chief Strategy Officer, BondFactor Company"This book is written by two top MBS experts who look at and far beyond the OAS relative value methodology.  Davidson and Levin explain why mortgage instruments are valued at different OAS levels and how this is related to model risk and uncertainty.  They demonstrate how to extend the idea of risk-neutral valuation to modeling both borrower prepayment behavior and default behavior, a major addition to the toolkit of MBS portfolio managers and traders.  The book provides many important insights and analyzes the 2007-2009 crisis rigorously and quantitatively." --Frank J. Fabozzi, Professor of Finance, EDHEC Business School; Editor,The Journal of Portfolio Management"This book is excellent. It combines a rigorous treatment of mortgage valuation models with a practical sense of what is important. It is easily comprehensible both to those familiar with the mortgage market and to those with reasonable quantitative backgrounds who are not. The chapters on the financial crises are particularly interesting, describing some of the trends that were overlooked in model calibration." --Laurie Goodman, Director, Housing Finance Policy Center, Urban Institute"It is gratifying to see how prepayment modeling for mortgage-backed securities has evolved from statistical analysis of historical data to recognizing that refinancings are the result of rational option exercise by borrowers. Davidson and Levin do a commendable job of bringing us up to date, providing along the way an insightful perspective of the 2008-2009 mortgage crisis and the subsequent regulatory developments around housing finance." --Andrew Kalotay, President, Andrew Kalotay and Associates, Inc."Davidson and Levin offer their MBS valuation modeling framework as well as insights on the financial crisis and housing finance reform. As the housing market, mortgage industry and related governmental policies change, our MBS modeling needs evolve, too. This book places particular emphasis on modeling uncertainty during regime shifts. This intellectually stimulating book provides market participants with the tools to conceptualize these issues." --Jiawei "David" Zhang, Managing Director/Head of MBS Modeling, Credit Suisse