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Quantitative Finance · Glossário

O que é Interest-only and principal-only strips?

Também chamado de: interest-only strip · principal-only strip

Definition 12.8 Rates, Credit, XVA and Risk · Capítulo 12 — Mortgage Modelling

An interest-only strip (IO) receives a pool’s interest payments and a principal-only strip (PO) its principal payments, scheduled and prepaid; together they are the pool.

Values of the pool’s principal-only and interest-only strips when the whole curve moves, at the pool’s option-adjusted spread. The PO rises steeply as rates fall and prepayments accelerate; the IO rises with rates. Data: the chapter’s tutorial.
Figure 12.2. Values of the pool’s principal-only and interest-only strips when the whole curve moves, at the pool’s option-adjusted spread. The PO rises steeply as rates fall and prepayments accelerate; the IO rises with rates. Data: the chapter’s tutorial.

Exemplos

Example 12.9 (Splitting the pool)

At its option-adjusted spread the pool splits into an IO worth 25.26 and a PO worth 74.74. When rates rise 25 basis points the IO gains (26.61) and the PO loses (72.10): slower prepayment extends the interest stream and delays the principal. The IO is a rare asset with negative duration (Figure 12.2).

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