Abstract
This paper uses a Monte Carlo simulation technique to value the price of mortgage-backed securities in a fixed-rate mortgage. By using the CIR interest rate model together with OTS, Office Thrift Supervision, prepayment model, a computationally simulation model is created. That is, we develop a model for pricing a mortgage- backed security when interest rates are allowed to move randomly, and when prepayments are a function of interest rate movements. This main goal of this paper is intended to investigate how the prices of mortgage-backed securities changes with respect to changes in parameters utilized in our simulation. The implication of this paper is potentially useful for banks to price the mortgage-backed securities under various economic environments.