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Thalesians Seminar (New York) — Joy Zhang — Agency MBS Prepayment Model using Neural Networks

Joy Zhang

Joy Zhang

Agenda

Tuesday, January 15, 2019:

Venue

Fordham University, McNally Amphitheatre, 140 West 62nd Street New York, NY 10023

Registration


Abstract

We apply deep neural networks, a type of machine learning method, to model agency MBS 30 year fixed rate pool prepayment behaviors. The neural networks model (“NNM”) is able to produce highly accurate model fits to the historical prepayment patterns, as well as accurate sensitivities to risk factors. These results are comparable with model results and intuition obtained from a traditional agency pool level prepayment model built via many iterations of trial and error of many months and years. This example shows NNM can process large data sets efficiently, capture very complex prepayment patterns, and can model large group of risk factors that are highly non-linear, and interactive. We also examine various potential shortcomings of this approach, including non-transparency/”blackbox” issue, model overfitting, and regime shift issues.

Speaker

Joy Zhang is an Executive Director and Head of Non-Agency Securitization Research at MSCI. Previously, Joy was a Director at Credit Suisse, responsible for mortgage collateral and regulatory modeling for securitized products trading. She also has worked as a senior developer at Goldman Sachs responsible for developing a firm-wide risk management system. Joy has an M.S. in Computational Finance from the Carnegie Mellon University and a Ph.D. in Chemistry from University of Kansas.


IAQF-Thalesians Seminars

The IAQF-Thalesians Seminar Series is a joint effort on the part of the IAQF and the Thalesians. The goal of the series is to provide a forum for the exchange of new ideas and results related to the field of quantitative finance. This goal is accomplished by hosting seminars where leading practitioners and academics present new work, and following the seminars with a reception to facilitate further interaction and discussion. The seminar series is limited to IAQF and Thalesians members only.