
	March 31 , 2006 Welcome to The Pipeline, Andrew Davidson & Co., Inc.'s monthly newsletter. Created as a "pipeline" of relevant and useful information for participants in the fixed income industry, we address recent trends, changes and advances that our consultants, developers and sales force have extensively studied. We value your input and urge you to contact us with questions, comments or article suggestions. Enjoy!



	AD&Co. Update Consulting Corner Model Performance Review Valuation Commentary

AD&Co. Update

Spring Announcements

By Rob Landauer

With March Madness almost behind us and the first pitch of the baseball season around the bend, the pace of development at AD&Co. continues at a furious pace. The best way to stay on top of new developments including model releases, product enhancements and client support issues is to read The Pipeline and let us know if you have any questions or concerns. Here are some of the things that are new for spring:

1) New Current Coupon Calculation for Agency Hybrid ARMs

The refinance incentive for all of AD&Co.’s fixed and hybrid prepayment models is currently driven by the one of the mortgage current coupon indices generated by Bloomberg. Read more...

Return to Top

Consulting Corner

A Framework for Market-Implied Defaults

By Anne Ching

In the corporate bond sector, statistical measures such as zeta scores have been used for quantifying credit and default risk for over three decades. Ten years ago Moodys KMV introduced the EDF credit measure, which represents an implied measure of default taken from market information about equity prices and respective price volatility Read more...

Model Performance Review

Model Performance
By Sanjeeban Chatterjee

Prepayment speeds increased in February by about 5% on average. FNMA30-year aggregate speeds in February were 11.1 CPR vs. 10.7 CPR in January. Speeds for FHLMC 30-years were 9.7 CPR in February vs. 8.9 CPR in January. Speeds for GNMA 30-year increased marginally from 15.1 CPR in January to 15.4 in February. The Andrew Davidson & Co., Inc. Prepayment Model forecasts were close to the February speeds, coming in within 1-2 CPR of the aggregate speeds. Read more...

Return to Top

Valuation Commentary

The Hybrid ARM Rates in Modeling and Valuation

By Alex Levin

The current Andrew Davidson & Co., Inc. prepayment model for hybrid ARMs was released in March of 2002 and built using 1994 – 2001 prepayment data. At the time these models were developed, hybrids constituted a fairly small but growing product class. The population used for the model production amounted to only $28 billion in total origination, with most of the empirical data seen prior to the first reset. In contrast, balloon MBS constituted a fairly popular class with a developed TBA market. Hence, when the AD&Co. analysts looked at the proxy of “refinancing rate,” they naturally selected that of a matching balloon MBS. After all, hybrids and balloons were deemed close relatives. Read more...

Return to Top


	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.