Determinants of GNMA Mortgage Prices |
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| Authors: | Michael J. Brennan Eduardo S. Schwartz |
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| Affiliation: | Commerce and Business Administration, University of British Columbia, Vancouver, British Columbia V6T 1W5 Canada. |
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| Abstract: | This paper contrasts three different arbitrage-based models for the pricing of GNMA securities, and analyzes the effect of different assumptions about the call policy pursued by the issuers of the underlying mortgages. Both the nature of the interest-rate uncertainty captured by the model and the assumed call policy have a major effect on the yield differentials predicted between GNMA securities and Treasury Bonds. |
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