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Consulting Corner - Credit Focus
The Implied Expected Defaults of ABX 06-2
By Andrew Davidson
During the past three months, the price of ABX 06-2 BBB- has fallen from 100.5 to 98.3. While this may seem like a significant decrease in value, ABX may still be priced to a lifetime expected loss of under 4%, and does not appear to be priced to an expected loss above 5%.
Let's unpack this statement. Read more...
Talking Credit
Active-Passive Vasicek
By Alex Levin
The Active-Passive Decomposition (APD) model of mortgage collateral is an essential structural feature of the AD&Co prepayment model and valuation system. It was born to kill two birds with one stone: to model the burnout and to enable a highly efficient backward induction for pricing fixed-rate pass-throughs. This approach will prove handy once again when we spark the new AD&Co default model. Read more...
Model Performance Review
The New ARM Model Delivers
By Dan Szakallas
This month we take a look at the performance of Andrew Davidson & Co.'s new ARM prepayment model for the month of October. This model, version 5.2a, was officially released in early October. As previously discussed, this model has a brand-new functional form and incorporates many new features to capture prepayment behavior specific to adjustable-rate products. We are going to focus on FHLMC hybrids, specifically 3/1's, 5/1's, 7/1's and 10/1's, indexed to both the 1-year Treasury and the 1-year LIBOR. Read more...
AD&Co. Update
Mortgage Market at a Glance
By Rob Landauer
The duration, relative value and optionality of the agency fixed and hybrid ARM market is eloquently summarized each week in our Market Analysis Report (http://www.ad-co.com/market_analysis.htm). Each Monday, a new report containing the key OAS and static based results for all actively traded fixed rate coupons and hybrid loan types are posted to this site to provide a snapshot of spread and risk. Servicing, portfolio and risk managers can use these reports to quickly assess the appropriateness of their hedges, values and portfolio structure. Read more...
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