Callable Mortgage Bonds - Numerical Methods and Valuation Models for Pricing and Risk Analysis

Callable mortgage bonds are utilized by individuals and companies to finance the purchase of real estate, and this asset class therefore plays a crucial role in modern society. Callable mortgage bonds constitute an enormous asset class and often offer long-term stable investments that are very attractive for pension funds. 
 
This book focuses on the pricing and calculation of risk numbers of callable fixed-rate mortgage bonds. Owing to the, from a financial perspective, irrational behaviour of borrowers, the pricing of these instruments usually requires the use of numerical solutions. Traditionally, it has been either a Monte Carlo simulation or a Finite Difference method. This book covers both methods and, in addition, the relatively new Fourier technique. This latter technique also creates a link between the interest rate derivatives market and the market for callable mortgage bonds. Finally, a chapter presenting a model for the valuation of a mortgage credit institute s loan book is included. 

List of contents

Chapter 1. Introduction.- Chapter 2. Fixed Income.- Chapter 3. Mathematical Finance.- Chapter 4. Prepayment Model Estimation.- Chapter 5. Stochastic Interest Rate Model.- Chapter 6. Simulation.- Chapter 7. Finite Difference.- Chapter 8. Semi-Analytic MBS Pricing.- Chapter 9. adjustable-rate Mortgages.- Chapter 10. Valuation of a Mortgage Credit Institute s Loan Book.- Chapter 11. Cash Settled Swaptions.

About the author

Niels Rom is Head of Risk and Pricing Model Validation at Nordea Bank in Copenhagen (Denmark). His work includes pricing models, including xVA, market risk models, counterparty credit risk models and AI models. He leads a team consisting of validation specialists with backgrounds in Astrophysics, Mathematics, Mathematical Finance, Physics and Statistics. 

Product details

• Authors: Niels Rom
• Publisher: Springer, Berlin
• Languages: English
• Product format: Hardback
• Released: 28.07.2025
• EAN: 9783031878886
• ISBN: 978-3-0-3187888-6
• No. of pages: 206
• Illustrations: XX, 206 p. 43 illus.
• Series: Finance for Professionals
• Subjects: Social sciences, law, business > Business > Individual industrial sectors, branches; Management und Managementtechniken, Anlagen und Wertpapiere, Wahrscheinlichkeitsrechnung und Statistik, Monte Carlo, trading, Valuation, Banking, Angewandte Mathematik, Risikobewertung, risk management, capital markets, Financial Engineering, Quantitative Finance, Mathematics in Business, Economics and Finance, Numerical Methods, mathematical finance, Stochastic Interest Rate Model, Semi Analytical MBS Pricing, Prepayment Model Estimation, Finite Difference, Derivatives Pricing, Fixed Income