Illya Gerasymchuk
Financial & Software Engineer
legally mortgage backed securities are bonds since they are tradable debt securities
legally mortgage backed securities are bonds since they are tradable debt securities
but they're not a plain bond, due to the option of borrower's early repayment
Macaulay or modified duration used for Treasuries doesn't work - you need effective/option-adjusted duration
the duration formula for MBS assumes for some pre-payments
if those happen at a smaller rate - the duration increases