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January 2006By Rob Landauer Just like the Steelers and Seahawks, AD&Co. is off to a fast start in 2006. Please stay on top of all of the new model developments and company announcements through our website and this column in The Pipeline. This is the best way to ensure that you do not miss out on the rapid flurry of model releases and events scheduled for 2006. A critical semi-annual event looms—the expiration of license keys on January 31st. If you have not already done so, please make sure that you install the new key that Ilda sent to you earlier this month. If you have not received your key or have an outstanding issue that needs to be resolved, please contact Ilda immediately. If you do not install the new key now, the model will cease to function on February 1, 2006. Mark your calendars: the dates for AD&Co.'s Annual Conference are set. The New York conference will be held at the world famous Puck Building located in SoHo on Thursday, June15th. The show moves to San Francisco at the chic W Hotel on Tuesday, June 20th. Read more... Model Performance Review Prepayments decreased from November to December as we expected, as a combination of the winter decline trend and steadily increasing mortgage rates dampened prepayments by about 10-15% across collateral and coupons. Prepayments for FNMA 30-year pools fell about 12-16% in the 5.0 to 6.0 coupon range. FHLMC 30-year pools followed that trend as well, though for the same coupon groups the drops were about 2% larger. GNMA 30-year pools showed similar drops compared to their conventional counterparts, posting about a 8-10% decrease in the 5.0 to 6.0 coupon range. Read more... The Role of Fair Value, Model-Free Value and Risk-Neutrality By Alex Levin
This month I decided to touch on these vital valuation concepts which, in essence, dominate many of my own consulting and development projects. Although most mortgage- and asset-backs are valued using models, I found out that many practitioners are not well-versed in some model limitations. As I will exhibit in this article, some MBS can be valued (exactly or approximately) without models. This alternative view allows for a basic validation of the outcome provided by complex computer models. In fact, successful investment steps exploring detected arbitrage opportunities and the hedging strategy can be undertaken without heavy reliance on models. I will give some examples, but will start with an explanation of the basic notions. Read more... |
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This email was delivered to laura@ad-co.com. The information contained in The Pipeline is believed to be reliable, but its accuracy and completeness are not guaranteed. All expressions of opinion are subject to change without notice. The Pipeline is provided for informational purposes only and is not a solicitation, endorsement or a recommendation for purchase or sale of any particular security. An affiliate of Andrew Davidson & Co., Inc. engages in trading activities in securities that may be the same or similar to those discussed in this publication. |
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