This paper explains the rationale behind the construction of Agency CMOs, quantifies risks embedded in Agency CMOs using a traditional and a novel approach, and offers valuable lessons learned when interpreting these risk measures. Among these lessons is that to fully understand the risks in Agency CMOs a full bond-by-bond analysis is necessary and that interest rate risk is not the only risk that needs to be considered when conducting risk management with CMOs.
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Working Paper
Understanding and Measuring Risks in Agency CMOs
Feburary 2013
WP 13-8 - The Agency CMO market, an often overlooked corner of mortgage finance, has experienced tremendous growth over the past decade.
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