The mortgage toolbox: valuing cash flows
Article Abstract:
Calculations of DVO1, the dollar value of a basis point over time, and the weighted average life (WAL) can help professional mortgage analysts determine pricing for upfront loan fees and loan fees charged over time. Formulas for the calculation of DVO1 and WAL are presented and applied to examples, with special attention to the role of the calculations in establishing mortgage insurance fees, bidding on mortgage service contracts, and comparing model prepayment speeds. Inappropriate uses for DVO1 also are outlined.
Publication Name: Secondary Mortgage Markets
Subject: Economics
ISSN: 0740-4271
Year: 1993
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Derivatives: powerful tools in a skilled craftsperson's hands
Article Abstract:
Derivatives can be powerful tools if investors are sophisticated enough to know how these financial instruments can be used to their advantage. Although chastised in the media for huge investor losses, this hedging vehicle is thriving, with 3,000 US companies using it to change their risk positions or pursue investment strategies. The popularity of derivatives is the result of their ability to hedge against risks, minimize investor transaction expenses, and manage cash flow more effectively and predictably.
Publication Name: Secondary Mortgage Markets
Subject: Economics
ISSN: 0740-4271
Year: 1996
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