Abstract: The mainstream methods take the mean of disco unted cash flows as the valuation of mortgage-backed securities(M BS),which is actually a risk-neutral price and neglects the significant effect of investors risk at titude in asset pricing.This paper develops a new approach to the valuation of mort gage-backed securities by way of utility indif ferent prices developed by Hodges and Neuberger(1989).Assuming investors have logarithm consumption utility,the paper obtains a formula to value MBS,which is easy to implement.The paper presents both Monte Carlonumeric algorithm and example.Some static analyses are shown in the end.

Key words: MBS pricing, stochastic rate model, optimal stopping time, utility indifference prices, Monte Carlo simulation