a) Create a dollar roll matrix of breakeven rates for an agency MBS with gross and deal
Question:
a) Create a dollar roll matrix of breakeven rates for an agency MBS with gross and deal coupons of 7.785% and 7.25%, respectively, and settlement dates 6/14/23 and 8/15/23. Assume standard fully amortizing fixed-rate mortgages with a term of 30:0, a WAM of 29:3 and an immediate price of 97-16. MBS CF's are due the owner of record on the first of each month but are paid on the 25th of that month. Assume standard PSA benchmarks.
The spreadsheet should correctly calculate the dollar advantage for any above input (though only for a two-month roll - not 1, 3, or more). I do suggest you try to recreate the 1-month dollar roll in the lecture pdfs first, to get a feel for how it's done (and you can submit this "test run" on a separate worksheet along with your 2-month answer for partial credit if warranted). Do not hardcode inputs in formulae, e.g., rates/coupons, dates, terms or WAMs, prices, reinvestment rates (though you can stick to act/360), balances, PSA convention, etc.) Calculate the breakeven matrix for PSAs of 100, 150, and 200, and forward drops of -40, -35, and -30 (32's) for the inputs listed in the first paragraph (these, or course, will be fixed numbers).
Submit your dollar roll screen for a forward drop of 35/32, a PSA of 150, and a reinvestment rate of 2% act/360. Rubric: the dollar roll screen works if you change the inputs within reason.
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Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders