Valuation of Complex MBS / ABS

Projects:

Client: Capital Markets Group
Project: Assist in developing the risk measures for a structured product
We advised the client on key components of risk in portfolios of mortgage and derivative products. Additionally, we established and calculated VaR measures for the monitoring of risk in the portfolios on an ongoing basis.

Client: Mortgage Debt REIT
Project: Performed a Comprehensive Portfolio Evaluation
We clustered the REIT's assets, liabilities and hedges by common risk factors. We then applied OAS and scenario analyses to the various asset classes to identify the portfolio's major sources of price risk and income variability. Once identified, we quantified and probability weighted elements of risk to assess their potential impact on the REIT's capital base and income. Among the risk factors analyzed were changes in the following:

Prepayments
Interest rates - level and shape of the yield curve
TED Spread
Mortgage Spreads

We analyzed various hedge strategies that utilized options, caps, swaps and futures to determine if they were effective in achieving objectives. Aspects regarding the optimal allocation of assets, funding strategies, and growth plans were also discussed. We undertook a similar project for a "start-up" REIT, on a pro forma basis to facilitate plans to raise private capital and proceed toward an IPO.

Client: Emerging Markets Hedge Fund
Project: Construction of an EM Debt, Risk Management System
We developed a risk management system to quantify the capital exposure from investments in Brady bonds and other emerging markets instruments. A key feature of the system was the ability to blend quantitative and analytical results with the portfolio manager's assessment of risk.

Client: Insurance Company
Project: Analyzed Assets in Conjunction with a Merger
An insurance company party to a merger retained us to provide an unbiased and accurate evaluation of assets in their portfolio. We established the fair value of assets held and provided comment on the various risks inherent in the portfolio. We segregated the assets by type and risk. We assisted in the sale of some assets prior to the transfer of the portfolio the buying institution

Client: Large Insurance Company
Project: An Analysis of Volatility and Market Risks
A large diversified insurance company retained us to evaluate the risks inherent in their mortgage derivative holdings throughout the company. We identified the major sources of risk and developed a methodology to quantify risk exposures. We determined the sensitivity of the valuation of each instrument and subsequently of the respective portfolios to reasonable changes in market parameters. Historical volatility levels were studied as well as the correlations between the various risk factors including their distribution and independence assumptions. The analysis was instrumental for the firm's capital allocation and strategic planning efforts.

Client: Large Mutual Fund
Project: Development of a Risk Management Process
Our assignment was to assist in constructing a risk management process for all the funds managed by the firm after a major trading loss had damaged their reputation. The process involved identifying the key components of risk and either choosing or developing appropriate performance benchmarks. A main element of the project was to emphasize a value-focused investment management philosophy. The project entailed organizational and analytical considerations.

Client: Institutional Fixed Income Investor
Project: Established a Risk Management Reporting Process
This project required us to work on behalf of the client to develop a process for monitoring the risk and performance of assets managed by the company's external investment managers. We standardized the risk/return reports and designed and implemented a review process to assist the client in achieving this end. Each external investment manager was trained in the nature of the reports, as well as the data and risk metrics required to complete them, to facilitate their understanding and ensure the regular completion of the reports. An ongoing, periodic review of the process was scheduled with the client to gauge its effectiveness and to develop the client's understanding and interpretation of the analysis and its key risk measures.

Client: REIT
Project: Review of Risk Management issues
Using our financial and statistical expertise, we advised the client on shortcomings in existing pricing and modeling assumptions. We recommended more robust techniques and addressed specific areas such as credit risk and expected losses of loans purchased. On the modeling side, we focused on weighting techniques, credit loss sensitivity, and CMO cashflows. To help tackle these deficiencies, we included recommendations on analytical packages in our final analysis.