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Treasury Consulting > Mortgage hedging

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Client:   UK Building Society

Fixed Rate Mortgage Hedging

Fixed rate mortgages present firms with particular risk management issues concerning hedging and pre-payment options.

The terms of reference for this work included the current pricing methodology, the risk management procedures, the portfolio structure, transfer pricing considerations and systems and procedural issues.

The work identified weaknesses associated with pricing and risk management. The deliverable included a report and presentation explaining the strengths and weaknesses of the techniques and processes. Recommendations to alter fixed rate mortgage pricing and hedging. Improvements to portfolio risk management and recommendations to implement the appropriate pre-payment model.

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