Is it warranted?
What will be an ideal response?
As just noted, the trouble inassuming a constant OAS in calculating interest-rate sensitivity measures is that the assumption cannot be justified or warranted on theoretical grounds.The OAS methodology provides a measure for relative valuation of MBS products that is vastly superior to some of the ad hoc measures that were historically used (and unfortunately still used) by portfolio managers. Those traditional measures fail to recognize the embedded options in these complex products. Nevertheless, using the OAS as a relative value measure has drawbacks. The first drawback is the prepayment model uncertainty. The second drawback is that in pricing MBS, there are differing OAS levels.
You might also like to view...
Government seeks to regulate ______________ in securities to prevent abuses of investors.
Fill in the blank(s) with the appropriate word(s).
The Affordable Care Act created program that enables small firms to offer health insurance to their employees. The program provides flexibility, choice, and the convenience of on-line account management. This program is called the
A) Medical Advantage plan. B) Medicaid program. C) FAIR plan. D) SHOP Marketplace program.