Ruthless_Mortgage_Price(argument list )
This older function values a mortgage security using a Hull-White interest rate tree and asssuming a ruthlessly-exercised (i.e. purely rational and economic, like a callable amortizing bond) prepayment model. MBS_Tabular uses a more sophisticated approach. The function returns the price per $100 principal.
The function uses the following arguments:
coupon rate on the mortgage security in decimal form,
e.g. 8% is expressed as 0.08 (for MBS, this is often
lower than the rate on the underlying mortgages)
NB: this rate must be specified as an annual rate, with a semi-annual compounding frequency
|Valuation_Date||the valuation date for the security (e.g. today); NB: the first element of the zero curve date array must be equal to this value||valid Excel date number|
|Maturity_Date||maturity date of mortgage||valid
Excel date number
|First_Open_Date||first "open" date of the mortgage (before this date, full economic prepayment penalties apply, which are based on the entire interest rate differential); if the first open date is past the maturity date, the mortgage is "closed"||none|
|Months_PIP||the number of months worth of penalty interest for liquidations in the open period (e.g. 3 months is typical for Canada)||>= 0.0|
|RAM||the remaining amortization of the mortgage, measured in MONTHS from the valuation date (e.g. 20 years remaining amortization would be entered as 240)||> 0|
|Partials_Percent_per_year||is percentage partial prepayments allowed (penalty free) in decimal form, e.g. 15% is expressed as 0.15; NB: assumes that it is percent of REMAINING principal, not original, and also assumes that it is like a liquidation, i.e. no effect on amortization||>= 0.0|
|Swap_Dates||array of zero coupon curve dates for the curve (curve should be of comparable credit risk as the mortgages)||strictly
The first date of this array must be Valuation_Date
|Swap_Rates||array of continuously compounded zero coupon rates in decimal form (e.g. six percent entered as 0.06) for the curve||>
correspond to Swap_Rates array
reversion rate of the short rate of interest, in decimal
form (Hull-White model)
When set to zero, the Hull-White model reduces to the Ho-Lee  model.
|Short_Rate_Vol||annual standard deviation of the short rate of interest, in decimal form (Hull-White model)||> 0|
|OAS||parallel shift of the zero curve in decimal form||none|
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