Static valuation [market]
AIM: Describe how static valuation of mortgage backed securities differs from dynamic valuation.
- Static valuation results in two metrics
- Average life: weighted average time to receipt of principal payments
- Static Spread: the yield spread over the entire theoretical Treasury spot-rate curve, not a single point on the Treasury yield curve.
- Dynamic valuation uses a (Monte Carlo) simulation to generate an option-adjusted spread (OAS)