Mortgage pricing in Russia : a methodological introduction

A methodology for pricing residential mortgages in the Russian context is presented. The discussion and examples are tailored to the Deferred Adjustable Instrument for Russia (DAIR), but could be applied to a variety of instruments. The manual begins with a discussion of the general theory of mortgage instrument pricing and then provides detailed explanations and examples of how to determine the key components of a mortgage price -- credit risk, interest-rate risk, options risk, spread risk, liquidity risk, operating costs, and the profit spread. For each component of the mortgage price, the manual discusses how the pricing is handled in Western countries and how it might be handled in Russia. Also, a methodology is presented for estimating component values when historical information is unavailable. Appended are summaries of the DAIR default risk pricing model and interest rate risk pricing model. Includes references.