 |
|
|
Interest Rate Lock Commitments and the SEC by Andrew Davidson Following the implementation of FAS133, mortgage bankers had been treating Interest Rate Lock Commitments (IRLCs) as derivatives. This practice allowed them to mark the IRLCs at fair value, which could be positive or negative depending on the specific rate lock and the movement of interest rates. There was some diversity in the treatment of IRLCs, as some firms were showing gains at the inception of rate locks (day 1), while other firms showed IRLC values to be near zero at inception. Read more... Valuation Commentary How to Validate an Interest Rate Model Part II: Validation of Floaters by Alex Levin Since any MBS system must manage ARMs, it certainly should be smart enough to figure the index rate in the course of simulations. Surprisingly, this is not a trivial task at all. Monte-Carlo sampling simulates only the short rate or, generally speaking, market "factors" on its own; longer rates remain to be constructed. When using the Hull-White model, exact analytics can link any-maturity zero rate to the short rate. Such a convenience is not presented in most non-linear models, such as the Black-Karasinski model. Read more... Model Performance Review by Dan Szakallas Prepayments rose sharply from January to February, as all coupons increased significantly across all collateral types. The biggest jump was seen in FNMA 5.5's, where speeds rose 57% from January. Even the premiums showed a sizeable increase from the previous month, ranging from 5% to 15%. Read more... AD&Co. Update Take Advantage of Us Are you taking advantage of all the market based data and research AD&Co. provides? A wealth of information, much of it updated on a monthly basis, resides in the Research & Reports section of our website. Consumers of this information can stay on top of market valuations, keep abreast of AD&Co. research and observe trends in the impact that prepayments are having on value and duration. Dynamic Performance Reports provide our clients and active model prospects with an objective look into the actual versus forecasted performance of AD&Co.'s agency fixed and hybrid prepayment models. There are three different report types that the user can apply to define the cohort and time period over which to view the performance of the model. These are not canned reports, but rather user-defined requests to the AD&Co. server that return the specified analysis. The Market Analysis Report provides OAS, duration, convexity and key rate durations for the actively traded 30year agency TBAs. These numbers, generated with AD&Co's prepayment, term structure (Hull White) and valuation models using market prices, give an objective market standard view of the relative value of these key securities. Results can be viewed assuming a base OAS or a Risk-Neutral OAS. Finally, the Research Report tab links to AD&Co's Quantitative Perspectives; in-depth analytical white papers on our models, analytical developments, research techniques and market commentary. These reports offer valuable details on the more technical aspects of our models and analytical techniques. Combined, these tools supply our current and potential clients with a constant stream of information to further their insight into our models and the market in general. We urge you to utilize these reports, ask us questions and give us feedback at 212-274-9075 or mail@ad-co.com. |
|
|||||||||||||
