11.7
MBS Trading
PYTHON PLUGIN
Structured
Relative Value
Description
Strategy 11.7: Buy MBS passthroughs when OAS is above historical average, duration-hedge with swaps
Strategy Logic
Strategy 11.7: MBS Passthrough Trading.
Buy mortgage-backed security passthroughs and duration-hedge with
interest-rate swaps. The main risk is prepayment risk which affects
the effective duration.
Hedge ratio estimated from dP/dR -- the price sensitivity of the MBS
to the swap rate.
Signal: BUY when the option-adjusted spread (OAS) is above its rolling
historical average, indicating the MBS is cheap relative to the swap
curve.
Required columns: oas (option-adjusted spread).
Falls back to close-based mean-reversion if OAS is unavailable.
Parameters
| Parameter | Default Value | Type |
|---|---|---|
| lookback | 120 | int |
| entry_z | 1.0 | float |
| exit_z | 0.0 | float |
Risk Configuration
| Risk Parameter | Value |
|---|---|
| Max Position Pct | 8.0% |
| Stop Loss Pct | 5.0% |
| Take Profit Pct | 8.0% |
| Max Drawdown Pct | 12.0% |