Abstract
We consider the problem of pricing fixed-rate mortgage-backed securities (abbreviated: MBS). In particular, we develop a model that tracks the price of MBS across time, but also under different scenarios of the term structure. Central to the developments of this paper is the use of massively parallel computing technology. The computational complexities of MBS, and the related pricing model, rendered them intractable on current workstations or large mainframes. The paper also develops practical procedures for the computation of the pricing model on massively parallel systems, like the Connection Machine CM—2.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
D.F. Babbei and S.A. Zenios. Pitfalls in the analysis of option-adjusted spreads. Financial Analysts Journal, December 1992.
F. Black, E. Derman, and W. Toy. A one-factor model of interest rates and its application to treasury bond options. Financial Analysts Journal, pages 33–39, January-February 1990.
G.E. Blelloch. Vector Models for Data-Parallel Computing. The MIT Press, Cambridge, MA, 1990.
P. Boyle. Options: A Monte Carlo approach. Journal of Financial Economics, 4: 323–338, May 1977.
L.D. Cagan, N.J. Carriero, and S.A. Zenios. Pricing mortgage backed securities with network Linda. Financial Analysts Journal, to appear.
J. Cox, J. Ingersoll, and S. Ross. A theory of the term structure of interest rates. Econometrica, 53 (2): 385–407, March 1985.
R. D’Ecclesia and S.A. Zenios. Valuation of the embedded pre-payment option of mortgage backed securities. Technical Report 92-07-02, Wharton School of Business, University of Pennsylvania, July 1992.
B. Golub. Private communication. Black Rock Financial Management, NY, 1991.
L.S. Hayre. Understanding option-adjusted spreads and their use. The Journal of Portfolio Management, 16: 68–71, Summer 1990.
R.S. Hiller and J. Eckstein. Stochastic dedication: Designing fixed income portfolios using massively parallel Benders decomposition. Management Science, to appear.
W. D. Hillis. The Connection Machine. The MIT Press, Cam-bridge, MA, 1985.
W. D. Hillis. The Connection Machine. Scientific American, June 1987.
M.R. Holmer. The asset/liability management strategy system at Fannie Mae. Interfaces, to appear.
J.M. Hutchinson and S.A. Zenios. Financial simulations on a massively parallel Connection Machine. International Journal of Supercomputer Applications, 5 (2): 27–45, 1991.
P. Kang and S.A. Zenios. Complete prepayment models for mortgage backed securities. Management Sciences, November 1992.
J.B. Kau, D.C. Keenan, W.J. Muller, and J.F. Epperson. The valuation and analysis of adjustable rate mortgages. Management Science, 36 (12): 1417–1431, 1990.
J.J. McConnel and M.J. Singh. Prepayments and the valuation of adjustable rate mortgage backed securities. Technical report, Krannert School of Management, Purdue University, October 1990.
North East Parallel Architectures Center, Syracuse University, Syracuse, NY. Parallel Computing News, August-October 1991.
K. Ramaswamy and S. Sundaresan. The valuation of floating rate instruments: Theory and evidence. Journal of Financial Economics, pages 251–272, December 1986.
E.S. Schwartz and W.N. Torous. Prepayment and the valuation of mortgage backed securities. Journal of Finance, XLIV: 375–392, 1989.
Thinking Machines Corporation, Cambridge, MA. Connection Machine CM-200 Series Technical Summary, 1991.
K. Worzel and S.A. Zenios. Tracking a mortgage index: An optimization approach. Technical Report 92-08-01, Wharton School of Business, University of Pennsylvania, August 1992.
S.A. Zenios. Massively parallel computations for financial modeling under uncertainty. In J. Mesirov, editor, Very Large Scale Computing in the 21-st Century, pages 273–294. SIAM, Philadelphia, PA, 1991.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 1993 Physica-Verlag Heidelberg
About this paper
Cite this paper
Zenios, S.A., McKendall, R.A. (1993). Computing Price Paths of Mortgage-Backed Securities Using Massively Parallel Computing. In: Flavell, R. (eds) Modelling Reality and Personal Modelling. Contributions to Management Science. Physica, Heidelberg. https://doi.org/10.1007/978-3-642-95900-4_23
Download citation
DOI: https://doi.org/10.1007/978-3-642-95900-4_23
Publisher Name: Physica, Heidelberg
Print ISBN: 978-3-7908-0682-3
Online ISBN: 978-3-642-95900-4
eBook Packages: Springer Book Archive