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Index Page 312 Monday, May 14, 2007 4:05 PM

312

Option-adjusted spread (Cont.) usage. See Valuation calculation, 230 Monte Carlo simulations, usage, 258 interpretation process, 217 measure, problems, 219–220 model output. See Securities Monte Carlo simulations, impact, 219–220 OAS-based prices, 273 output. See Securities superiority, 220 user awareness, 261–262 Option-based prepayment model. See Mortgages Option cost, 217–218, 259 Optionless bullet mortgage yield curve, 284e Optionless yield curve, 283–284 Option-theoretic models, 277 Original balance, 33 Original loan term, 5 OTS. See Office of Thrift Supervision Out-of-the-money loans, 87 Out-of-the-money MBS, speeds, 74 Out-of-the-money rates, 17 Outstanding market balances, division, 85 Overcollateralization (OC). See Initial OC; Up-front OC concept, 188 creation, 193 turboing, normal cash flow, 189e inclusion. See Initial OC spread structures, 104 structures, 29, 103, 187 target, 194, 196 usage, 100

PACs. See Planned amortization classes Parallel-shift scenarios, bullet agency

debenture, 265e, 266e Parallel split, creation, 141 Parent bond, 104, 108 Parent tranche, 152, 272

equation, 274 leveraged position, 273 price, equation, 275

INDEX

Partial durations, 236 Partial prepayment, 48 Pass-through indication, 23n investor, interest payment, 56 monthly cash flow, example 100% PSA, inclusion, 55e–56e 165% PSA, inclusion, 58e–59e 250% PSA, inclusion, 60–61 theoretical value, 214 Path present values, distribution, 214– 215 Paydowns, effects, 33 Payment due date, 65 Payment-option ARM, 8 Payment-option loans, 82 Payment shock, 93 effect, 96 Pension funds, investment objectives/ risk tolerances, 42 Periodic cap, 8 Periodic coupon interest, payment, 109, 124, 131, 144 receiving, 110 Periodic total return, 221 Pipeline, 32 Planned amortization classes (PACs), 114–127. See also Localized PACs average lives, 125e balance schedule, reference, 115 band drift, 255 bands, 114, 115 deterioration, 126 cash flows, 104, 125 length, 123–124 collars, 114 creation, process, 117 outperformance, 266 outstanding balances, 254e PAC1/PAC2, 127 PAC/support deal, 176 PAC/support structure, 114–127 graphic representation, 118e, 121e run, effective band, 256e schedules, 115, 118e, 120e creation, 116e

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