Abstract
This paper studies the empirical facts of agency mortgage-backed securities price dynamics. Based on an explicit formula for MBS pricing developed in this paper, the prepayment rate can be implied from the market price. The standard structural form approach calculates the prices from the structure of prepayments. We reverse the problem, deriving the prepayment from the price. We find that the price change does not necessarily reflect the change of actual prepayment. The explicit formula and calibration strategies developed in this paper provide an alternative way to analyze and valuate the MBS.
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