In this paper we consider portfolio optimisation problems based on simulated scenarios and extend their usual application by including prepayment-sensitive fixed-rate agency mortgage-backed securities into the universe of available assets. This has become feasible due to recent closed-form approximation approaches for the pricing of MBS, which have long been neglected in modern portfolio optimisation applications due to the computational burden. In an empirical case study we show that an optimal asset allocation strategy with MBS is indeed able to substantially outperform strategies based on stocks and regular bonds only.     «

In this paper we consider portfolio optimisation problems based on simulated scenarios and extend their usual application by including prepayment-sensitive fixed-rate agency mortgage-backed securities into the universe of available assets. This has become feasible due to recent closed-form approximation approaches for the pricing of MBS, which have long been neglected in modern portfolio optimisation applications due to the computational burden. In an empirical case study we show that an optimal...     »