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Which of the following statements regarding the Monte Carlo simulation model in valuing mortgage-backed securities is CORRECT? A. The key difference between the various suppliers of the Monte-Carlo-based simulation programs is the assumed level of refinancing rates. B. The critical refinancing rate spread (spread relationship between the refinancing rate and the 1-month interest rates along each of the simulated paths) is allowed to vary. C. The Monte-Carlo simulation model is not designed to be arbitrage-free. D. Monte Carlo models must be calibrated so that the current price generated by the paths in the model is equal to the market price of the on-the-run benchmark issues. |