What would happen to the static spread for each tranche if a 15% volatility is assumed?
What will be an ideal response?
At the higher level of assumed interest-rate volatility of 15%, the static spread would fall because of the homeowner's option to prepay. This would negatively affect the collateral with its loss distributed among the tranches with tranches with longer duration experiencing greater losses. Tranche Z and any residual tranche would be least affected.
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A) Misunderstanding B) Common mistake or shared mistake C) Unilateral mistake or one-sided mistake D) Fraudulent misrepresentation E) Non est factum
International Financial Reporting Standards (IFRS) is the main U.S. accounting rule book and is currently created and governed by the Financial Accounting Standards Board
Indicate whether the statement is true or false