Ahead of the MBS Curve: Generating Alpha in an Uncertain Prepayment Environment
Nicholas Gunther
Co-Founder and Chief Solutions Officer
Agency residential MBS offer yields well above Treasury rates because those yields are subject to prepayment risk, namely, the risk that because of prepayments on the underlying mortgages the MBS will pay off earlier or later than expected. Accurate prepayment predictions are thus critical to retaining the higher yields of MBS; an accurate prediction can increase MBS investment value while an inaccurate one can create losses.
To understand these potential gains and losses requires answering the following question: what precisely is the value to an investor of a more accurate prepayment prediction? This answer has three parts: (1) how accurate is the prediction, (2) how inaccurate is the market's and (3) what is the value of the prediction’s greater accuracy?
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About the Speaker
Nicholas Gunther
Co-Founder and Chief Solutions Officer
Nicholas Gunther is Co-Founder and Chief Solutions Officer at Infima. He has a background in advanced mathematical methods and financial markets, services, regulation and securitization. Nick has worked on the development, structuring and execution of financial products at AIG, Goldman Sachs, and other Wall Street firms. He founded registered broker-dealer GH Group and became its CEO until selling it. Nick is also affiliated with UC Berkeley’s Consortium for Data Analytics in Risk.
Nick received a both a PhD in Mathematics (1982) and JD (1986) from Harvard University.
