Mortgage Backed Securities Quant Interview Guide
Mortgage backed securities quant interview guide covering mortgage pools, prepayment, negative convexity, duration, rates, examples, and caveats.
Candidates discussing prepayment, duration, convexity, and rates sensitivity.
MBS cash flows depend on prepayment
Mortgage-backed securities pass through mortgage payments, but borrowers can prepay, changing timing and duration of cash flows.
Negative convexity is central
When rates fall, prepayments can rise and shorten duration. When rates rise, prepayments can slow and extend duration, creating negative convexity.
Concrete example
An MBS may not gain as much as a Treasury when rates fall because borrowers refinance and return principal earlier than expected.
Models need behavioral assumptions
Prepayment depends on rates, borrower incentives, seasonality, housing turnover, credit conditions, and operational frictions.
Common mistakes
Candidates often price MBS like ordinary bonds. The embedded prepayment option changes cash flows, duration, convexity, and hedging.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.