AD&Co. News - Nov '07

Are You in Tune?
by Rob Landauer

Every so often, we all need a little tune-up. If your back is aching, a visit to the chiropractor for an adjustment may be in order. If the timing on your car is misfiring, your neighborhood mechanic has the tools and diagnostics to get the engine purring again.

It is the same case for empirical models that are based on historical data. Every so often, current events deviate sharply from the past and the model needs to be adjusted to more accurately capture recent collateral performance. Adjustments can also be made to help the user assess the model’s sensitivity to various parameters or to reflect an opinion on the impact that various loan types and issuers will have on collateral performance.

Regardless of the reason, rest assured that each of the key parameters of our Prepayment, Valuation and LoanDynamics™ models can be easily tuned by the user. This issue will focus on the tuning parameters available on all of our products and the impact adjustments to these dials will have on model performance.

As needed, AD&Co. may issue tuning recommendations for a particular model and version. Tuning recommendations are issued by the respective model analyst/developer tracking the actual versus forecasted performance of the model on a monthly basis. Any new tuning recommendations will be announced in The Pipeline and will be available on our website. While AD&Co. advises that all formal tuning recommendations be employed, the user must decide if these tunings make sense for a given portfolio.

For more information on tuning, please visit the Vectors Client Support tab on our website at www.ad-co.com. If you have any questions about how to benefit from these tuning parameters on any of our models, please do not hesitate to contact your account manager.

Happy Thanksgiving!!!