in the Fixed Income textbook P299, It said " traches C and D at the time of the analysis were priced at a discount with short avg lifes. The OAS and price of these two tranches were not affected by a slowing down or a speeding up of the prepayment model." Can’t understand why OAS and price will stay the same if prepayment rate changes. Can someone throw some thoughts on this?
Without more info or context, I’m kind of in the dark, but I would think it might have something to do with the tanches being PAC tranches, and so are protected by support tranches against prepayment risk?
Tranches C and D are PAC tranches. The problem here is that if PAC tranches are discount tranches, will the changes in prepayment rate change their OAS and option cost?
I agree with Smarshy. You would need more information as far as the PAC collars that are in place. If that specific PAC is well within its boundaries, then slight changes in prepayement assumptions should not change it’s OAS or option cost