can someone please explain why and how initial collar of PAC tranch changes… i.e when and why upper and lower effective collar move…
Not on that reading right now, but from what I recall, it’s not the upper/lower collars that move. It’s the rate of prepayment that fluctuates. Due to fluctuations, your support tranches may last longer or run out earlier. If prepayments are happening earlier than expected, the support tranches will run out sooner; if the prepayments are happening at a slower rate, support tranches will last longer.
thank you aether… so its something to deal with support tranch…
on page 432 of CFAI 3rd last paragraph starts ‘the effective collar changes every month’ … im unable to understand this paragraph and the three following paragraphs… its all about upper lower collar moving … way over my head