ANDREW DAVIDSON & CO., INC. QUANTIFIES CHANGING DYNAMICS OF
THE MORTGAGE CURRENT COUPON YIELD
New York City, April 17, 2001--Andrew Davidson & Co.,
Inc. today released their latest industry study, which examines
the relationship between the Treasury and US denominated Swap curves
and the mortgage current coupon. The study uncovered an especially
strong correlation between movements in the Swap curve and the mortgage
current coupon. The correlations revealed in the study have been
fully incorporated into the latest versions of the firm's commercially
available prepayment and valuation models.
Until recently, investors primarily used US Treasuries as the benchmark
curve to generate option adjusted spread (OAS) for mortgage-backed
securities (MBS). With the reduction in both issuance and the amount
of outstanding debt, the Treasury curve has become a less reliable
indicator of the prevailing interest rate environment. Therefore,
the Swap curve has become the benchmark of choice by investors in
valuing MBS on an OAS basis.
Prompted by this industry-wide trend, Andrew Davidson & Co.,
Inc. analysts Eknath Belbase, Ph.D. and Dan Szakallas examined the
relationship between the Swap curve and the various mortgage current
coupons. In their study, they found a strong positive correlation
between the two. Andrew Davidson, president of Andrew Davidson &
Co., Inc said, "this work is valuable, because it quantifies
the changing interest rate dynamics of the MBS market, and provides
valuable insight as well as specific prescriptions for modeling
and hedging MBS."
A detailed account of the analysis performed by Belbase and Szakallas
is available in Andrew Davidson & Co., Inc.'s research publication,
Quantitative Perspectives. The newest release, entitled The Relationship
Between the Yield Curve & Mortgage Current Coupon, is available
at the company website, www.ad-co.com.
Andrew Davidson & Co., Inc. provides consulting services, litigation
support, and risk analytics for mortgage and asset-backed securities.
The VectorsTM analytics library currently offers prepayment models
for fixed rate and adjustable-rate mortgages, prepayment models
for asset-backed securities, option-adjusted valuation and risk
management tools for MBS, ABS, CMOs, and interest rate processes.
The company's unique blend of consulting experience and expertise
with cutting-edge quantitative methods allows it to combine decades
of Wall Street experience with the most advanced modeling techniques
to produce informed, effective third-party software.
Contact: Ilda Pozhegu
Andrew Davidson & Co., Inc.
212 274-9075
ilda@ad-co.com
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