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Consulting Corner
Today's CFO: Triple Threat?
By Andrew Davidson
Clark Simpson inbounds the ball to Jim who passes it back to Clark. During the week, Clark is CFO of Gold Bank, but today he is the hard driving guard in his weekly game with his old buddies. As Clark moves up court he shouts out the score “24-20,” and moves up to the top of the key. He drives toward the basket and pulls up for the jumper. There is a sharp slap on his hand as he releases the ball. Clark sinks the shot and calls the foul. “26-20,” Clark calls out as he sets up for the foul shot. Just like work, he thinks, I run the portfolio, keep track of the accounting and enforce the limits. Read more...
Valuation Commentary
Measuring and Managing Prepay Model Risk
By Alex Levin
AD&Co develops, maintains, and licenses OAS models, and strives to make the models as accurate and useful as possible, but the assumptions behind these models should not be taken for granted. The OAS method is highly dependent on modeling assumptions, most notably, the prepay model. Other problems could stem from improper interest rate distribution or volatility assumptions. With most, if not all, attention focused on controlling the interest rate risk that an OAS model can explain, mortgage companies and banks operating on an accrual accounting basis often regard OAS instability as “spread risk.” They view this risk as a ghost, a mathematical residual, something not concerning them or realized by them as long as they don’t intend to sell assets. Read more...
Model Performance Review
Model Performance
By Dan Szakallas
February prepayments rebounded from the unexpected lows seen in January with increases in the discounts and cuspy premiums. February increases were larger than we have seen historically, but that may be because the lows in January were much less than expected. FNMA 30-year prepayments for 5.0 to 5.5 coupons both showed about 10% increases from January’s speeds, while increases in the GNMA collateral were more moderate, in the 3% to 6% range. All collateral types across all coupons showed decreases from the previous month. We show actual pool CPR speeds of selected coupon buckets, along with corresponding model forecasts, Read more...
AD&Co. Update
March 2005
By Rob Landauer
Now Available: New version of MBS Prepay Model: 4.3.4 or 5.0.1a
AD&Co is pleased to announce the availability of a new version of our market standard pool level MBS Prepayment Model. Depending on the version of the vendor system through which you use the model, the new version will be either v4.3.4 or 5.0.1a. Both versions will generate the same prepayment speeds. To obtain a copy of the version you need, please contact Ilda by phone (212-274-9075) or by email.
The new version of the model changes Read more...
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