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Valuation Commentary - March '08
RiskProfiler™: Your Complete Valuation Solution
by Alex Levin
RiskProfiler™ is AD&Co’s database-driven (MS SQL or Access) valuation solution that incorporates standard and advanced valuation technique including OAS, prOAS, credit OAS (with the LoanDynamics™ Model) and derivative pricing. A thoroughly designed front-end exposes market data, valuation options, tunings and results. Multi-dimensional risk measures can be compiled for large portfolios of MBS, ARMs, CMOs (including credit-impaired instruments) and standard rate derivatives to produce portfolio or strategy-level summary reports.
What Does RiskProfiler™ Do?
RiskProfiler™ is a complete option-adjusted valuation solution suitable for pricing MBS from both traditional OAS angles and under the logic flow of Credit OAS. For traditional OAS, the system operates with our suite of prepayment models and interest rate models. For Credit OAS, the role of the prepayment model is played by our LoanDynamics™ Model (LDM), and an interest rate model is complemented by our stochastic home price model. Hence, both prepayment and default options are captured in the analysis, in the best possible way.
Much like traditional MBS valuation systems, RiskProfiler™ converts market prices into OAS or other measures (like Yield) and produces dozens of Greeks: effective duration and convexity, key rates, Vega, sensitivity to prepayment tunings, etc. Unlike other systems, RiskProfiler™ can value instruments by forecasting default rates and losses and even measure exposures to short-term HPA or long-term HPA. It can combine every computed risk metric across portfolio instruments.
In addition, RiskProfiler™ is filled with built-in utilities and tools to load market rates and swaption matrix right off Bloomberg, alter prepay model tunings, set tasks that suit particular business regimen and safely keep positions along with all analytic assumptions in the database.
