Modelling Danish Mortgage Bonds
The purpose of this paper is to explain the background behind the key-figures for the danish mortgage bonds that are calculated on NASDAQ and at the same time give some insight into the methods employed.
The paper is organized as follows. It starts off with a short history of the Danish Mortgage Credit System.
Next we look at the different kind of Bond-Types, such as: Callable annuity bonds, Non-callable bullet bonds, Floating-to-Fixed, Capped Floaters and Ratchets and Floating-rate bonds. After this we go through the different risk-measures that are being calculated.
The last section is the Technical Section, and it contains the following sub-sections: The stochastic Interest Rate Model, Factors influencing the prepayment behaviour, The debtor distribution, Determining the refinancing-rate, Published prepayments – how are they included in the Prepayment Model?, Delivered or Synthetic cash flow?, The Prepayment Model and The Pricing principle.
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