RT Journal Article
SR Electronic
T1 Analyzing Non-Agency RMBS: <em>A Practical</em>
               <br/>
               <em>Application of Option-Adjusted Returns</em>
JF The Journal of Structured Finance
FD Institutional Investor Journals
SP 27
OP 32
DO 10.3905/jsf.2012.18.2.027
VO 18
IS 2
A1 Richard L. Cooperstein
YR 2012
UL https://pm-research.com/content/18/2/27.abstract
AB Risky markets like non-agency RMBS require methods to determine risk-adjusted returns. Risk is properly defined as the volatility of potential returns, and options theory provides metrics to compare one bond investment with another. Credit option-adjusted spread (COAS) is determined from thorough simulation analysis of the underlying risks of future house price and interest rate movements and their impact on borrower behavior and thus bond cash flows. The usefulness of COAS is that Risk-Adjusted Return = Gross Yield – COAS. RAR is superior to other methods of investment volatility because RAR can be directly compared from one investment to another.TOPICS: MBS and residential mortgage loans, CMBS and commercial mortgage loans