Valuation of Structured Securities:RMBS Case Study

Abstract

In this survey article, the author describes different approaches to the valuation and risk analysis of structured securities composed of heterogeneous individual loans. Such securities, including CMOs, CDOs, CLOs, and other ABS, have greatly grown in volume, complexity and type over the last few decades. Using credit-sensitive residential mortgagebacked securities (RMBS) as a focal point, he highlights key valuation concepts including static spread, market value, intrinsic value, and credit-adjusted option-adjusted spread and discuss how their use has evolved through the financial crisis.