Bond Immunization

Bond immunization is closely related to defeasance which I discussed in posts  Defeasance2.0 and Defeasance. The similarity between immunization and defeasance is that you are trying to hedge the interest rate risk involved with a given liability cash flow. The example on the spreadsheet “Immunize” may be over simplified, but I think it describes the concept sufficiently. Normally […]

Default Rates Affect on Servicing

A reader (Justin) asked about how the CRD (Constant Default Rate) affects MSR (Mortgage Servicing Rights). I have taken a spreadsheet previously published on CDR, and added the value of servicing. The new spreadsheet is called CDR_Servicing. The CDR includes an additional CPR, which will reduce the life of the MBS and reduce the value of servicing. However,  […]