A theoretical and numerical analysis of collateralized mortgage obligations

Ulstein, Bjørnar André
Master thesis
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URI
http://hdl.handle.net/11250/168119
Date
2008
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Abstract
This thesis approaches securitization of mortgage loans. In particular, the foremost objective

of the thesis is to conduct a theoretical examination of Collateralized Mortgage Obligations

(CMOs). The analysis of mortgages and mortgage-related securities gets complicated due to

uncertainty concerning the amount and timing of the prepayment element of cash flows from

mortgages. This thesis therefore examines how prepayments are dealt with in the valuation of

such securities. The thesis also conducts a numerical illustration of the state-of-the-art

valuation methodology – the Monte Carlo simulation model.