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The weighted-average maturity (WAM) and weighted average coupon (WAC) are used for valuation of a pass-through MBS, and they form the basis for computing cash flows from that mortgage pass-through. Just as this article describes a bond as a 30-year bond with 6% coupon rate , this article describes a pass-through MBS as a $3 billion pass-through ...
"Trees" are widely applied here. Other common pricing-methods are simulation and PDEs.. Option-adjusted spread (OAS) is the yield spread which has to be added to a benchmark yield curve to discount a security's payments to match its market price, using a dynamic pricing model that accounts for embedded options.
For a coupon of 0%, where the principal amortizes linearly, the WAL is exactly half the tenor plus half a payment period, because principal is repaid in arrears (at the end of the period). So for a 30-year 0% loan, paying monthly, the WAL is 15 + 1 / 24 ≈ 15.04 {\displaystyle 15+1/24\approx 15.04} years.
In theory, an "unbiased" value is the probability-weighted average of the various scenarios (discounted using a WACC appropriate to each); see First Chicago Method and expected commercial value. Note that in practice the required probability factors are usually too uncertain to do this. [12]
The Z-spread of a bond is the number of basis points (bp, or 0.01%) that one needs to add to the Treasury yield curve (or technically to Treasury forward rates) so that the Net present value of the bond cash flows (using the adjusted yield curve) equals the market price of the bond (including accrued interest).
The modified Dietz method [1] [2] [3] is a measure of the ex post (i.e. historical) performance of an investment portfolio in the presence of external flows. (External flows are movements of value such as transfers of cash, securities or other instruments in or out of the portfolio, with no equal simultaneous movement of value in the opposite direction, and which are not income from the ...
The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The WACC is commonly referred to as the firm's cost of capital. Importantly, it is dictated by the external market and not by management.
The average cost is computed by dividing the total cost of goods available for sale by the total units available for sale. This gives a weighted-average unit cost that is applied to the units in the ending inventory. There are two commonly used average cost methods: Simple weighted-average cost method and perpetual weighted-average cost method. [2]