This thesis approaches securitization of mortgage loans. In particular, the foremost objectiveof the thesis is to conduct a theoretical examination of Collateralized Mortgage Obligations(CMOs). The analysis of mortgages and mortgage-related securities gets complicated due touncertainty concerning the amount and timing of the prepayment element of cash flows frommortgages. This thesis therefore examines how prepayments are dealt with in the valuation ofsuch securities. The thesis also conducts a numerical illustration of the state-of-the-artvaluation methodology – the Monte Carlo simulation model.
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