TY - JOUR T1 - Pricing Agency MBS under Quadratic<br/>Gaussian Models JF - The Journal of Fixed Income SP - 15 LP - 35 DO - 10.3905/jfi.2013.23.3.015 VL - 23 IS - 3 AU - Xu Bai Y1 - 2013/12/31 UR - https://pm-research.com/content/23/3/15.abstract N2 - Interest rate modeling is an integral part of the mortgage-backed security (MBS) pricing mechanism. The particular model choice can have a significant impact on both MBS valuation and its risk metrics. The market-implied interest rate volatility skew suggests that the interest rate distribution is often more normal than log-normal. A normal model tends to shorten the MBS durations while a log-normal model prevents the rates from going negative. This article shows how QGM models can have the best of both worlds.TOPICS: MBS and residential mortgage loans, quantitative methods ER -