AD&Co US Mortgage High Yield Index, GSE and Borrower Options-Adjusted Spread: Tier 2

The AD&Co US Mortgage High Yield Index crOAS, GSE-and-Borrower-options-adjusted spread, is an extension of the traditional OAS measure. On a set of 20 standardized, market-and-model stress scenarios, AD&Co solves an approximate partial differential equation (PDE) of periodic return, starting from maturity and inducting backwards. It computes a discount spread over Treasury that equates tranche's value at time-0 to the observed market price. The cash flows and balances are loss-adjusted using AD&Co's LoanDynamics Model (LDM) and the CRT values are capped by available GSE call options. Investors and fund managers can use the index to assess the broad market returns, risks and opportunities available through investing in a market-weighted, passive portfolio of US mortgage credit risk transfer instruments. The Index also provides a means of comparing the returns of an actively managed portfolio against a passive, naive market portfolio as approximated by the Index. The Mid-Tier and its s