Andrew Davidson & Co., Inc. Launches new MBS valuation product
Rob Landauer, Andrew Davidson & Co., Inc. (June 16, 2004)
New York City, June 16, 2004 --- Demonstrating its continued dedication to
innovation, Andrew Davidson & Co., Inc. is delighted to announce the launch
of ValueNet, a new valuation system that uses a cohesive set of new
techniques and models to more fully capture the risk profile of
Mortgage-Backed Securities (MBS).
Three major developments have been synthesized into a cohesive framework
that goes beyond the results of traditional approaches. First, an
Active-Passive Decomposition (APD) form of the prepayment model has been
implemented. APD splits an MBS pool into two path dependent components,
enabling the use of backward induction pricing as an alternative to Monte
Carlo. Backward induction reduces the lengthy computational time of OAS
analysis using Monte Carlo while delivering a richer set of results.
Secondly, the company has developed a
Prepayment-Risk-and-Option-Adjusted-Spread (prOAS) calculation library
driven by a risk-neutral prepayment engine that adjusts value for the risk
of prepayment uncertainty not captured by a model. The prOAS methodology
addresses the shortcomings of standard OAS analysis, namely the variability
in OAS across instruments from the same agency and equal credit quality. The
third new ValueNet application is an Enhanced Pool Level Prepayment Model
which employs newly available GSE agency disclosure data such as weighted
averages for loan size, FICO score, LTV and states of origination, allowing
for more accurate and refined pool level prepayment forecasting.
ValueNet offers mortgage portfolio and servicing managers, traders and
research professionals a more appropriate relative benchmark. "It is not
often that we can say that we have something truly new, but ValueNet
provides new insight into MBS risk and value. ValueNet provides the ability
to value a wide range of securities in a common framework and opens up new
avenues for identifying arbitrage opportunities."
Alex Levin, Senior Quantitative Developer/Consultant, has written a three
part Quantitative Perspectives series detailing the research and analysis
involved in developing the components of the ValueNet. The comprehensive
research piece, "Divide & Conquer: Exploring New OAS Horizons, Parts I, II &
III" is available at the Andrew Davidson & Co., Inc. website www.ad-co.com.
Andrew Davidson & Co., Inc. plans to unveil ValueNet at its 12th Annual
Conference in New York City on June 17.
Andrew Davidson & Co., Inc. provides consulting services, litigation
support, and risk analytics for mortgage and asset-backed securities. Their
VectorsTM analytics library currently offers prepayment models for both
fixed and adjustable rate mortgages, prepayment models for asset-backed
securities, option-adjusted valuation and risk management tools for MBS,
ABS, CMOs, and interest rate processes. The company's unique blend of
consulting experience and expertise with cutting-edge quantitative methods
allows it to combine decades of Wall Street experience with the most
advanced modeling techniques to produce informed, effective third-party
Contact: Rob Landauer
Andrew Davidson & Co., Inc.