CFAI Text Vol 4 P.183~185. Although this has been discussed before, I am still confused. 1. What is the definition of “Cuspy coupon MBS” ? 2. In Exhibit 6 A. What is “current coupon” B. What is “Cuspy Coupon” C. Is it that the tangent point (marked as “Cuspy Coupon”) is the point that the convexity turns from positive to negative ? Advice from anyone who has a good understanding will be appreciated.
cuspy coupon MBS are the cutest cuddliest thing in the whole wide world u just need to play with one to see a cuspy coupon is a sweet spot that results in a great change in price of mbs if the slightest of change in interest rate ( prepayemtnt etc) they are just ticklish
mortgage security for which changes in interest rates have large effects on prepayments, hence on price.
Any futher advice will be appreciated.