MBS, CMO, ABS and ARM OAS Model

Model Overview
OAS-based calculations are combined into a single framework using the relevant AD&Co. prepayment model, an interest rate process (single-factor Hull-White, Black-Karasinski or Squared-Gaussian models, and a two-factor Gaussian model), the OAS analytical library and environmental assumptions. For structured CMOs and ABS, the Model is fully integrated with Intex Solutions, which provides the data and distribution rules to generate the cashflows for OAS analytics. The Model contains an internal cashflow engine for pass-throughs, both fixed-rates and ARMs. A rigorous modeling of various forward settlement conventions found in TBA, pool-specific trading and CMO trades is supported.

Valuation Technique
Forward sampling with accuracy enhancements. The model allows for using antithetically reflected Monte-Carlo, or a more accurate quasi Monte-Carlo with ortho-normalized shocks. An option to "fudge" rates ensures correct discount factors even for a limited sample.

Model Inputs
Interest Rate Process: Trade (valuation) date with available benchmark yield curve (Treasury or Swap rates) and a set of ATM swaption volatilities. The model is equipped with "instant" calibration engine. Alternatively, volatility and mean reversion can be user-defined. The two-factor model requires entering two correlations between the short rate and two user-defined long rates.

OAS Analytics: Price, OAS/prOAS, yield, or BEEM, settlement date, TBA flag. MBS indicatives include collateral type, Coupon, WAC, WAM, loan age, balloon term, amortization type, cashflow type (this may include IOs, POs and MSRs), and pay frequency. ARM indicatives include MBS indicatives plus ARM index definition and coupon reset rules.
CMO is entered by either cusip or Intex Deal ID employing the Intex database for the rest of information.

Prepayment Model: The Model may account for enhanced, user-supplied, characteristics such as average loan size, LTV, FICO, geographic information, etc. that are internally converted into model's tunings.

Risk-Neutral Prepay Model Tunings: To value MBS on a prepay-risk-and-option-adjusted basis (using prOAS), the Model expects risk-neutral prepay tunings to be entered. This allows for valuing MBS flat to the respective, same-credit and liquidity, non-MBS benchmark (e.g. agency debentures).

Model Outputs
Price or OAS/prOAS including reported sampling accuracy; effective duration and convexity; option cost; key rate duration; prepayment durations; vega; total return; scenario analyses; static and forward curve results including WALs and WAL-equivalent speeds.

Model Documentation
Divide & Conquer: Exploring New OAS Horizons, Parts I, II & III
Interest Rate Modeling: A Conscientious Choice
An Implied Prepayment Model for MBS
The Relationship Between the Yield Curve & Mortgage Current Coupon

Platforms Supported:
Subroutines: Windows
Shared Objects: Solaris, HP and Linux
Excel

Vendor Partners: The following systems, which seamlessly incorporate the output into broader analytical solutions, have fully integrated the Model: Algorithmics, BearMeasurisk, Murex, Reuters and Summit Systems.