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Chapter 13: Mortgage-Backed Securities (MBS) Overview

In this section

  • Mortgage Pass-Through Basics
    A detailed exploration of how mortgage pass-through securities work, focusing on GSEs, TBA trading, prepayment modeling, and the unique cash flow structures pertinent to the CFA Level II curriculum.
  • Prepayment Risk and Contraction/Extension
    Explore how mortgage prepayments can accelerate (contraction risk) or slow down (extension risk), and learn scenario-based MBS valuation techniques for better risk management.
  • Weighted Average Maturity (WAM) and WAC
    Explore how Weighted Average Maturity (WAM) and Weighted Average Coupon (WAC) define a mortgage pool’s interest rate profile, timing of cash flows, and implications for MBS valuation.
  • Practice Item Set: MBS Cash Flow Projections
    Learn to project MBS cash flows under varying prepayment speeds and macro scenarios, exploring principal, interest, and duration impacts in a vignette-style problem.
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Chapter 12: Convertible Bonds and Other Hybrids
Chapter 14: Collateralized Mortgage Obligations (CMOs)