SUMMARY

There is no single perfect measure, or set of measures, for evaluating the price risks associated with MBS. Some measures, such as modified duration, clearly are inferior means of measuring the risks associated with MBS. However, measures such as option-adjusted duration and convexity have the potential for inaccuracy, due to price changes resulting from either modeling error or factors external to the models. Ultimately, a variety of measures and techniques should be used by investors to assess and understand the risks associated with the securities under consideration.
EXHIBIT 11.4 Prices, Spreads, and Risk Measures for Different Agency Pass-Throughs and CMOs*
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