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MH Collateral Performance Update Valuation Commentary How to Validate an Interest Rate Model? Mortgage practitioners are more liberal and grateful consumers of term structure modeling analytics than typical Street derivative traders. They pay much less attention to such things as the assumed rate distribution (leave that to statisticians - they've got to earn their bread somehow), pricing standard rate derivatives struck away from at-the-money (ATM) or exotics (who cares?). Symptomatically, MBS complexity that traces its roots to the behavioral uncertainty often masks the need for rigor. Read more... Model Performance Review by Dan Szakallas After slightly increasing from November to December, prepayments took another nose-dive in January, with all coupons decreasing significantly in prepayment speeds from December. It appears as though the slight uptick seen in December was an anomaly, as speeds dropped to their lowest levels in months. The FNMA 30 6.5 fell 19% from the previous month, while FNMA 15 5.5's fell 17%. Read more... AD&Co. Update Mark Your Calendar for June 17th! The much anticipated, always entertaining and information packed 2004 AD&Co. Client Conference will be held on Thursday, June 17th in New York City. During the event we will introduce new products and services, feature hands-on workshops and offer practical risk management tips from industry practitioners. Please keep your eyes peeled on The Pipeline, your email in-box and the AD&Co. website for additional information in the coming weeks. MBS & ABS OAS in a Flash Are you looking for an alternative to the OAS analytics provided by Bloomberg for MBS? Though Bloomberg can utilize the AD&Co. prepayment model in its OAS analysis (OAS1 function), the term structure model employed is developed and maintained by Bloomberg and does not provide the same level of analytical rigor as the AD&Co. term structure library. A robust OAS analysis utilizes both market standard prepayment models AND term structure models. Last year, AD&Co introduced an enhanced version of our OAS Spreadsheet, which provides the full suite of OAS analytical tools for use through Excel. This product has proven to be an extremely popular risk management and valuation tool for portfolio managers, risk managers and valuation professionals who are seeking a state-of-the-art tool that's easy to both install and to use. The OAS Spreadsheet utilizes both the MBS and ABS Prepayment Models and exposes all model tuning parameters. The Spreadsheet incorporates three different term structure models (Black-Karasinski, Hull-White and Squared Gaussian) as well as an engine that calibrates volatility and mean reversion based on the implied volatility of actively traded swaptions. The Quantitative Perspectives, "Interest Modeling, A Conscientious Choice", offers a detailed overview of the analytical rigor of this model. Analytical outputs include effective duration and convexity, total return, key rate duration, OAS duration and a variety of static and forward curve results. The Spreadsheet provides cash flow engines for fixed rate TBAs, pass-throughs and whole loans as well as ARMs and hybrid ARMs. For structured products, the spreadsheet seamlessly integrates Intex and other vendors of cash-flow sub-routines into the analysis. The spreadsheet is fully compatible with the Bloomberg API so that yield curve, swaption volatility, mortgage current coupon rates and security specific data can readily populate the appropriate fields with the push of a single button. We are happy to provide a free trial with no obligation. For more information, please contact Rob or Ilda at 212-27-0545. |
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