inherent in the tail ARM under two rate scenarios, the base case and the up 200 bps. First, we show the total tail's value. Then we remove the 1st collar and measure the incremental result. Finally, we free the tail from all other collars.

The 1st collar is seen to be considerably binding, especially for the + 200 bps scenario. For the exception of the 5/2/5 and 5/1/6 cap structures where it is totally or mainly absorbed by the life cap, the 1st collar generally accounts for more than a half of the total value of all collars.

Table 3: Tail's Contribution with Decomposed Cap Structure

ARM Type	Cap Structure	Tail with Full Cap Structure		Value of 1st Collar		Value of All Collars
		Base	+200 Bps	Base	+200 Bps	Base	+200Bps
3/1 YR	2/2/6	(0.23)	(1.05)	0.71	1.25	0.87	1.74
5/6 MO	5/1/6	0.23	0.07	0.02	1.04	0.14	0.14
5/1 YR	2/2/5	(0.10)	(0.66)	0.39	0.54	0.74	1.35
5/1 YR	5/2/5	0.26	0.09	0.00	0.00	0.16	0.47
5/1 YR	5/2/5	0.37	0.11	0.00	0.00	0.23	0.60
5/1 YR	2/2/5	0.14	(0.26)	0.19	0.44	0.34	0.93
5/1 YR	2/2/6	0.00	(0.41)	0.29	0.55	0.40	0.89
7/1 YR	5/2/5	0.20	(0.09)	0.00	0.00	0.25	0.63

Table 4 shows the forward value of the tail seen today for the reset date under various treatments of caps. These forward prices were estimated from the incremental present values shown in Tables 2, 3 and taking both the forward pool factor and the discount factor into consideration. For example, the 99.61 forward price for the 3/1 HARM retaining full cap structure was produced using a 0.23 point present value loss due to the tail, 14.3 ballooned-life CPR (coming from the dynamic AD&Co. prepay model) that results in a 0.65 pool factor 36 months forward, and a 0.90 discount factor, for the same period (0.23/0.65/0.9 = 0.39 of forward price discount). The value in the last column shows the value of the tail assuming no caps or floors and also assuming immediate reset to today's yield curve. >>>