@article {Bai15, author = {Xu Bai}, title = {Pricing Agency MBS under QuadraticGaussian Models}, volume = {23}, number = {3}, pages = {15--35}, year = {2013}, doi = {10.3905/jfi.2013.23.3.015}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Interest rate modeling is an integral part of the mortgage-backed security (MBS) pricing mechanism. The particular model choice can have a significant impact on both MBS valuation and its risk metrics. The market-implied interest rate volatility skew suggests that the interest rate distribution is often more normal than log-normal. A normal model tends to shorten the MBS durations while a log-normal model prevents the rates from going negative. This article shows how QGM models can have the best of both worlds.TOPICS: MBS and residential mortgage loans, quantitative methods}, issn = {1059-8596}, URL = {https://jfi.pm-research.com/content/23/3/15}, eprint = {https://jfi.pm-research.com/content/23/3/15.full.pdf}, journal = {The Journal of Fixed Income} }