Got a tricky question? Receive an answer from students like you! Try us!

Derivative Investment - Essay Example

Only on StudentShare
Masters
Author : volkmanterrill
Essay
Miscellaneous
Pages 11 (2761 words)

Summary

Quite recently mortgage backed securities have increasingly become the largest investment portfolio of fixed income products. The spread of mortgage backed securities within various investment indices have tremendously increased. Because of the increased visibility and adaptation of mortgages as an attractive investment proposition, several mortgage pricing models have been developed…

Extract of sample
Derivative Investment

The other option available is to default the payment on the mortgage. It may be noted that both of these options are available with the borrower. In this context this paper presents a report on the features of the mortgage in general and an analytical study of the implicit options contained in them through an illustration.
A mortgage bond issue is secured by a lien on the specific assets of an individual or a business corporation - usually fixed assets. The specific property securing the bonds is described in detail in the mortgage which is the legal document, giving the bondholder a lien on the property. As with other secured lending arrangements the market value of the collateral should exceed the amount of the amount lent or the amount of bond issue by a reasonable margin of safety. If the corporation or the individual defaults in any of the provisions of the bond indenture the lender or the trustee on behalf of the bondholders, has the power to foreclose. In a foreclosure the lender or the trustee takes over the property and sells it using the proceeds to pay the amount of debt due to the lender. If the proceeds are less than the amount of bond issue or the loan amount outstanding the bondholders or the creditor become an unsecured creditor for the balance amount. ...
Download paper

Related Essays

Derivative Thinking - article summary
In fact, the editorial presents derivatives as one of the most important innovations in the financial markets in the past three decades. "These instruments are little miracles of financial engineering, permitting investors to take a position, or make a bet, without having to actually hold the physical asset. Rather, the value of a derivative rests on the value of an underlying security or a particular reference" (Derivative Thinking) Accordingly, the most beneficial factor about derivatives is that they allocate investors to break up and manage the specific risks involved. Thus, the…
Investment Options
Individuals or firms who speculate in futures contracts by buying to profit from a price increase or selling to profit from a price decrease are aptly termed as speculators. Suffice it to say that speculators put their money at risk in the hope of profiting from an anticipated price change. Buying futures contracts with the hope of later being able to sell them at a higher price is known as "going long." Conversely, selling futures contracts with the hope of being able to buy back identical and offsetting futures contracts at a lower price is known as "going short."…
8 pages (2008 words)
Investment Decision
On the other hand, stock price appreciates almost exclusively through good financial results.…
2 pages (502 words)
Investment Appraisal
Investment Appraisal …
6 pages (1506 words)
Investment & Private Banking
In this era, corporate issuers search for any form of low-cost funds and then use the derivatives market to alter those claims in a risk profile that cater the financing needs of the corporation (Bethel & Ferrell, 2006). The increased use of derivatives has given sophisticated institutional investors a way to attain risk exposures that they desire and the ability to manage their existing risk exposures in a dynamically cost-effective way. Derivatives are increasingly becoming more and more accepted in the financial markets with competitive prices and margins. But the margins earned by the…
16 pages (4016 words)
In the light of recent examples of banks and companies making heavy losses from using derivatives, evaluate the risks and benefits of derivatives contracts.
211-264).…
7 pages (1757 words)