Financial Management & Strategy

Question 0

Financial instrument hedging

Answer 0

Interest rate driven methods

Prepayment driven hedge

Question 1

Portfolio hedging techniques

Answer 1

Selling hedge / production
Product hedge- low risk prepayments
Ltv- retain low ltvs
Seasoned portfolio
Refi opps for current borrowers
Institute prepayment penalties

Question 2

Types of interest rate driven hedges

Answer 2

Interest rate floors
Interest rate swaps
Call puts on treasury futures

Question 3

Prepayment driven hedges (3)

Answer 3

POs
Prepayment caps
Inverse floaters

Question 4

What is a po?

Answer 4

Principal only portion of a cmo- collateralized mortgage option

Question 5

2 types of msr

Answer 5

Originated msr

Purchased msr

Question 6

What does the secondary market do?

Answer 6

Provide liquidity to the primary market
Standardizes rates / pricing geographically
Standardizes documents

Question 7

Risk types

Answer 7

Fallout
Interest rate risk
Basis risk