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Analysis of Student Loan Asset-Backed Securities: Construction of a Valuation Model using a Trinomial Interest Rate Tree
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
2016 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesisAlternative title
Värdering av värdepapperiserade studentlån (Swedish)
Abstract [en]

Student debt in the U.S has grown rapidly over the last decades. A common practice among lenders is to pool the loans into securities that are sold off and traded between institutional investors. Since these securities have no market price this thesis aims to develop a valuation model. A time discrete approach is used, based on the Hull-White short-rate model to create a trinomial interest rate tree. This tree serves as a basis for the discounting of future cash flows generated from a specific student loan asset-backed security. In order to assess the credit risk, the student loan market and potential speculative bubbles are discussed.

The model is applied on the ”Navient Student Loan Trust 2015-2” and each tranche’s intrinsic value and yield to maturity is calculated. Since the model lacks proper quantification of the credit risk, the result is a valuation model that is best used when valuing asset-backed securities that can be deemed risk- free.

Abstract [sv]

Studentskulden i USA har växt kraftigt under de senaste decennierna. Ofta samlar de långivande bankerna ihop studentlånen och skapar värdepapper av lånen. Dessa säljs vidare och handlas sedan mellan institutionella investerare. Eftersom dessa värdepapper saknar marknadspris, ämnar den här uppsatsen att skapa en värderingsmodell. Detta görs i diskret tid, utifrån Hull-Whites korträntemodell skapas ett trinomialt träd. Detta träd tjänar sedan som bas för att diskontera framtida kassaflöden från ett specifikt studentlånsvärdepapper. För att uppskatta kreditrisken diskuteras studentlånemarknaden och potentiella spekulativa bubblor.

 

Modellen appliceras på ”Navient Student Loan Trust 2015-2” och det diskonterade värdet samt avkastning för varje specifik tranche beräknas. Då modellen saknar en kvantifiering av kreditrisken, är resultatet en modell som är mest applicerbar vid värdering av tillgångssäkrade värdepapper som kan bedömas som riskfria.

Place, publisher, year, edition, pages
2016.
Series
TRITA-MAT-K, 2016:28
National Category
Mathematics
Identifiers
URN: urn:nbn:se:kth:diva-189021OAI: oai:DiVA.org:kth-189021DiVA: diva2:942695
External cooperation
Nordea Markets
Subject / course
Applied Mathematical Analysis
Educational program
Master of Science in Engineering - Industrial Engineering and Management
Supervisors
Examiners
Available from: 2016-06-26 Created: 2016-06-26 Last updated: 2016-06-26Bibliographically approved

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CiteExportLink to record
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