Aggregated Structural Equations (ASE) Model: An Alternative View of Value and Risk - Part 2

As a follow up to ASE Part 1, Servicing Insights Vol. 9 explains why to utilize an “Aggregated Structural Equations (ASE)” methodology rather than a “rate path” (OAS) methodology to value each MSR asset.

The ASE methodology is more dynamic because it takes into account all the structural relationships between variables that contribute to MSR value, allowing the interest rates, inflation rates, and volatility to interact.


In this latest servicing insights volume, we will use some real examples of how the ASE methodology is applied to actual MSR portfolios. Next, we will explain how the ASE gives us a better understanding of a portfolio’s underlying risk, especially as it pertains to hedging MSRs. We will conclude with some cautions and challenges of using the ASE model.

“There is a certain naïve comfort in OAS. You don’t have to address identifying the proper exogenous or endogenous variables, solving the data and statistical issues associated with them, or examining the challenging “noisy” forecasts like you must with ASE.” – Excerpt from Servicing Insights Vol. 9


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ASE Model: An Alternative View of Value and Risk – Part 2

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Servicing Insights & Strategies for Success

The series explains detailed aspects of servicing valuation & modeling for experienced mortgage bankers.

These strategies are defined by our industry veteran and author of the Servicing Insights series, Phil Laren.  We are proud to make the insights from our servicing and modeling expert available through the Servicing Insights Series. Phil Laren leads the MSR services group at MCT, which provides robust software, consulting, and valuation solutions.

We are dedicated to sharing seasoned insights and strategies for success with mortgage professionals everywhere.


About The Author – Phil Larenphil_laren-1-1

Phil Laren has 30 years experience in all aspects of servicing, modeling, pricing, trading, negotiating, hedging, risk analysis, accounting analysis and operations.

He created MSRlive!, our newly launched mortgage servicing software, based on the same Desktop Servicing Model that has helped countless Mortgage Banking professionals make the right decisions in their servicing valuations.


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Continue to Explore the Servicing Insights Series

We hope that this series of Servicing Insights will give you the assurance as a professional to weigh your risks and inform your judgments while managing your MSR portfolio.

By utilizing these valuable and practical insights, you can look forward to a measurable difference in the certainty of your servicing decisions that will impact your bottom line directly. Download, read, and learn more from our experts.

Explore the servicing insights whitepaper collection below!