No. The simulation introduces all key concepts, including amortization, tranching, and prepayment behavior, through intuitive onboarding.
Mortgage Backed Securities Simulation
Students structure, analyze, and price mortgage-backed securities - balancing prepayment risk, credit quality, and investor returns - in our Mortgage-Backed Securities Simulation.
Mortgage Backed Securities Simulation Overview
The Mortgage-Backed Securities Simulation places students in the role of MBS analysts and structurers tasked with turning pools of residential mortgages into tradable securities.
Developed by structured finance specialists and academic experts, the simulation walks students through the full securitization process - from evaluating borrower credit profiles to modeling cash flows, tranching bonds, and presenting offerings to investors.
Students grapple with prepayment behaviour, default probabilities, and credit enhancements, just as real-world professionals must when designing and marketing mortgage-backed instruments.
This simulation is ideal for advanced finance, fixed income, or capital markets courses that want to bring MBS theory into practical application.
Mortgage Backed Securities Simulation Concepts
The simulation brings together key ideas in mortgage securitization and structured products, including:
- Mortgage Pool Analysis: FICO scores, LTV ratios, geographic concentration, and default risk
- Cash Flow Modeling: Scheduled payments, prepayments, delinquencies, and defaults
- Prepayment Risk: PSA models, refinance behavior, and interest rate sensitivity
- Tranching Structures: Senior-subordinate tranches, sequential vs pro rata pay, interest-only and principal-only tranches
- Credit Enhancement: Overcollateralization, excess spread, reserve funds, subordination
- Investor Considerations: Duration, convexity, yield, and risk appetite
- MBS Market Context: Agency vs non-agency MBS, and post-crisis reforms
Gameflow
What Students Do
Students act as MBS structurers and analysts at a fictional securitization desk. Over several rounds, they will:
- Evaluate a pool of residential mortgage loans using credit and geographic data
- Simulate cash flows under different prepayment and default scenarios
- Design tranches with different risk-return profiles
- Apply credit enhancements to improve creditworthiness and ratings
- Price the tranches based on investor appetite and market conditions
- Prepare investor presentations or internal memos justifying their structure
What Students Learn
Through this simulation, students gain an applied understanding of mortgage-backed securities, including how to:
- Assess the credit quality and risks embedded in mortgage loan pools
- Use prepayment models to forecast principal flows
- Build and defend structured bond tranches based on investor needs
- Balance returns, liquidity, and risk across senior and subordinate tranches
- Communicate complex financial structures with clarity and transparency
- Reflect on the regulatory and systemic role of MBS in financial markets
Why This Mortgage Backed Securities Simulation Works
Mortgage-backed securities are often introduced in abstract terms - but this simulation makes them tangible, dynamic, and high-stakes.
By giving students full control over the MBS structuring process, the simulation reveals how small modeling choices and structural decisions can significantly affect investor appeal, credit risk, and long-term performance. It also provides space for discussing the 2008 crisis, risk mispricing, and the evolution of MBS regulation.
Perfect for courses in fixed income, securitization, or financial engineering, this simulation builds deep, lasting understanding of mortgage-backed markets.