 |
|
|
Fair Value & Cost-Based Accounting by Andrew Davidson Fair Value has been creeping into GAAP for a number of years. In the mortgage market, servicing assets as well as retained residuals from securitizations are recorded at fair value. In addition, under FAS 133, derivatives are marked to market on the balance sheet, but their treatment for income varies. Read more... Valuation Commentary Prepayment-risk-and-option-adjusted-spread Valuation by Alex Levin What is the difference between the risks embedded in agency MBS and agency debentures? Why are MBS usually traded at a wider spread, even on an OAS (Option Adjusted Spread) basis, i.e. after the prepayment option exercise is accounted for? Why are agency IOs traded "cheap," at an OAS in the hundreds, sometimes over one thousand basis points, whereas same-credit, same-pool, POs are "rich"-- trading well below agency bonds on an OAS basis. Finally, why do the effective durations that are derived using the constant OAS method rarely match empirical durations (a nightmare for risk management practitioners)? Read more... Model Performance Review by Dan Szakallas As expected, prepayments rose again from February to March, with all coupons posting sizeable increases from the previous month. The biggest jump in FNMA 5.0's, where speeds rose about 68% from February. Prepayment speeds increased at least 15% for all the coupons listed below, and the lower coupons increased by at least 25% from the previous month. Read more... AD&Co. Update MODEL EUTHENASIA: WHY SOME VERSIONS MUST BE PUT TO REST All good things must come to an end, so while we understand that the retirement of older versions can be problematical for some clients, we do find it necessary to phase out older versions as they become obsolete. The primary reasons that we force the retirement of these creaky versions are as follows: 1) Clients that use these old versions are not utilizing the best forecasting tool that we make available. This could lead to difficult questions from regulators and auditors as to why the client is not taking advantage of AD&Co.'s best effort. 2) Newer versions fix bugs and integration problems that were found in older versions. It becomes very difficult for AD&Co. to troubleshoot problems when the client is using versions that are no longer supported. 3) AD&Co. has integrated our model into many different vendor systems and platforms. It is impossible to support all these old versions on all these platforms through all the vendors. By retiring older versions, we can concentrate our efforts on supporting the most recent versions so that our clients are assured of uninterrupted and smooth use of our best forecasting tool. With this in mind, please be advised that version 433f of the MBS Pool Level Model will expire on July 31, 2004 and will not be supported and should not be used past that date. Rest assured, AD&Co. will always provide a least six months notice as to when a given version will cease to operate. For more information about the dates of version releases and the how the model changed from one version to another, please click here. The most current Model versions: MBS Prepayment - v4.3.3i ABS Prepayment Model - v1.1.2e OAS - v5.1x IR Process - v4.2c AD&CO CLIENT CONFERENCE: JUNE 17th in NYC The final arrangements are now being made for the 2004 AD&Co. Client Conference in New York City. The only detail that remains is for our clients and friends to make arrangements to attend. Look for your invitation in the mail and prepare to register by phone or at www.ad-co.com. Nearly 200 people attended last year and found the day to be extremely informative and productive. At this year's event, we plan to introduce some of our newest prepayment and valuation models as well as demonstrate practical applications of these tools. When the presentations are over and we have harvested a day's worth of useful market information, the conference will be topped off with a bowling party at the world renowned Chelsea Piers on the west side of Manhattan. Join us for beer, wine, pizza and sandwiches as you pit your bowling skills against your friends and colleagues for trophies and prizes. |
|
|||||||||||||
