Some Simulated Rate Paths Drive OAS, Study Finds, Cash-Flow Assumptions Crucial in Option Valuation
March 10, 2006
Sustained high interest rates and long, average lives of cash flows with high-spread durations have a disproportionate impact on option adjusted spreads, than do declining rate, low average life paths with low spread durations, according to a new Bear Stearns analysis of mortgage OAS. Even modest changes to cash flows in a high interest rate climate can dramatically alter OAS valuations, and investors are advised to pay attention to model assumptions in a high-rate…
Is Onity Group eyeing a sale? Perhaps. And why not? Servicing values are approaching a 25-year high.
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