Structured Finance and Mortgage Consulting
With over five decades of combined expertise in structured finance, we can provide sophisticated advice on all aspects of mortgage and structured finance, including analysis and modeling of cash flows, risk management and mitigation, model validation, and financial derivatives and hedging.
Structured Products Analysis and Modeling
Mortgage backed and asset backed securities have embedded complexities stemming from their cash flow structures, sensitivity to interest rates, prepayments, credit, and market structure complexities, including agency issues. We provide expertise on a variety of models for prepayment, default, origination, hedging, servicing, interest rates, and credit.
Financial Derivatives
Whether you use derivatives for hedging, risk management, or for return enhancement, they can add a layer of complexity to an already difficult asset class. We bring decades of experience in modeling, trading, and risk management of interest rate, volatility, correlation, portfolio, index, and structured finance derivatives to bear to help you sharpen your portfolio performance and risk management processes.
Risk Management
Structured Finance presents unique risk management challenges. Our decades long expertise, including the 2008 Global Financial Crisis, in managing billions of dollars in structured product risk helps our clients understand and address market and credit risk as well as scenario analysis, tail risk, counterparty risks and their interaction with business process and operational risk.
Model Validation and Risk Mitigation
When managing Structured Products, models are unavoidable, and yet fallible. The new generation of AI/ML models adds further layers of opacity and complexity. Our deep knowledge of structured finance models, including their prior failures and weaknesses can help you pinpoint the underlying strengths, assumptions, and fragilities in your modeling infrastructure, to make your business and financial outcomes more robust, and to satisfy regulatory requirements.
Structured Products Analysis and Modeling
Mortgage backed models for prepayment and option adjusted spread models
Stochastic models for non-agency mortgages incorporating credit and prepayment optionality costs
Originator / servicer evaluation models based on performance after controlling for stated collateral characteristics.
Innovative structured product models incorporating collateral performance and cash flow waterfalls
Collateral stratification-based default models, non-linear aggregation of risks on defaults.
Roll-rate transition matrix-based models to project defaults and cash flows
Default behavior models incorporating willingness to pay based on mortgage payment versus rental alternatives, extent of negative equity, and payment history
Interest rate and credit default models
Other expertise include risk neutral modeling, principal component modeling, and modeling of embedded options
Risk Management
Market risk management models for portfolios
Mortgage Prepayment and default risk
Stress testing and scenario analysis
Originator and servicer risk analysis
Macro scenario based risk analysis
Tail risk evaluation
Counterparty risk
VaR and Risk based capital
Financial Derivatives
Swaps, Futures, and Forwards on interest rates and currencies
Options in equities, currencies, rates and credit
Mortgages and mortgage derivatives in portfolios
Credit Indexes
CDOs
Tranches, credit options, and other structured credit derivatives
ETFs
Structured finance derivatives and waterfalls
Margins, cleared products, and collateral management
Leverage, repo, encumbered capital, and prime brokerage
Model Validation and Risk Mitigation
Stress testing
How models failed during prior financial crises
How to make investment firms and portfolios less vulnerable to model risks
Fragility in risk modeling assumptions
Fragility in alpha generation models, and good trading practices
Back testing and over-fitting of data
The perils of alternative data
Vulnerabilities of AI/ML techniques when applied to investing