CMO & TIPS modeling under inflation adjusted scenarios (Case of Indonesia)

Abstract

This paper presents a quantitative approach to calculate price and risk measures for collateralized mortgage obligation (CMO) and treasury inflation protected securities (TIPS) using pool of mortgages owned by Indonesian government. The distinctive feature of the mortgage is its two sources of creditor which are the Indonesian government and the mortgagor. With increasing demand of mortgage and the growing concern of inflation in the economy, structured CMO and TIPS from Indonesia’s mortgage pool could be a way to generate funds for future development and a way to structure inflation hedging vehicle for both institutional investors and Indonesian government.