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alexli


Total Posts: 1
Joined: Mar 2019
 
Posted: 2019-03-05 16:07
I noticed something funny when looking at a CMO floater.

Could anyone let me know if the below statement is true or not?

I speculate that given a full price of 100% face value, YTM for a given cashflow path is only a function of coupon and NOT a function of amortisation (PO structure)

If this is true (or approx), could anyone advise me how to prove this?
Mathematical proof is beyond me... and i'd like to use this to test our mortgage model since simulated rates are easily observed.


tzarnicholasiii


Total Posts: 7
Joined: Apr 2017
 
Posted: 2019-08-05 14:49
Yes that is relatively true for the cash flows. You could run it on a yield table to show this in bbg. In practice of course the floater can have more duration then one might think as differences arise in the underlying collateral spreads. As the quoted margin starts to differ from the discount margin used to price the bonds at a constant index. Also you are short a cap in the floater and so again there will be m2m affects of that with rate changes and volatility. Also i suppose the cap limit your coupon as well.
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