Case Study Details
About The Project
Intrinsic Valuation of Pension Fund Investments Backed by RMBS/ABS-CDOs
Client Profile
One of the largest financial institutions in the United States, with a diversified portfolio of pension fund investments across structured finance products, including RMBS, ABS-CDOs, and home equity loan-backed securities. The client serves sovereign entities and insurance companies, requiring robust credit analytics and valuation support for secondary market transactions.
Project Objective
To deliver bottom-up credit insights and intrinsic valuation for pension fund holdings backed by non-agency RMBS and ABS-CDOs, enabling informed investment decisions in the secondary market. The goal was to assess creditworthiness at the loan level and support pricing strategies for complex structured products.
Loan Performance Database- Monthly Update
Loan Scoring Model- Heuristic / Deterministic Approach
Prepayment & Default Curve- Intrinsic Valuation for Fixed Income Assets
Normal, frequency and cumulative distribution of loan scores with standard deviation multiples.
Our Approach
Loan-Level Mortgage Modeling
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Developed granular models based on individual loan performance, incorporating borrower behavior, property characteristics, and macroeconomic factors.
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Simulated default probabilities, prepayment speeds, and loss severities under various economic scenarios.
Credit View Construction
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Built bottom-up credit views by aggregating loan-level analytics across tranches and deal structures.
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Integrated economic indicators such as unemployment rates, home price indices, and interest rate curves to stress-test asset performance.
Loan Score-Based Credit Model
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Designed a proprietary Loan Score framework to rank and segment loans based on risk-adjusted metrics.
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Enabled intrinsic valuation by mapping loan scores to expected cash flows and credit enhancement levels.
Valuation of Non-Agency Bonds
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Applied the model to non-agency RMBS and ABS-CDO bonds traded in the secondary market.
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Delivered pricing insights and relative value analysis for pension fund portfolios, supporting buy/sell decisions and risk management.
Loans Vs FICO Vs CLTV for the two deals.
Impact & Outcomes
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Provided the client with high-resolution credit analytics that enhanced transparency and confidence in asset performance.
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Enabled more accurate pricing and risk-adjusted return assessments for pension fund investments.
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Strengthened the client’s ability to navigate secondary market complexities and optimize portfolio allocations.
