Username: ForexGuy Rating: Asked to: Dara Madee Date Created: 04 Apr 2016 |
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Category | 17 |
Tag | Financial |
Question | What is 'Drop'? |
Hello Forex Guy, The difference in price between the front month and back month in a mortgage-backed security (MBS) dollar roll trade. A dollar roll is a popular type of trade in the MBS pass-through TBA market. According to forward securities pricing theory, the front month price should be higher than the back month price. The drop is a function of current short-term interest rates, prepayment estimates, and the supply and demand for pass-throughs in the current delivery or front month. |
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