Question

Check all that is true about the SDA default model:

	If you know the beginning pool balance and assume a 200% SDA, you can figure out what the CDR is for each month
		Under the 100% SDA assumption noone defaults when their mortgage is a few months away from being paid out
		If you know the beginning pool balance and assume a 200% SDA, you can figure out what the CDX is for each month
		SDA function for defaults takes the same shape as a PSA function for prepayments
		The SDA takes into account maturity of the mortgage
		SDA stands for standard default assumption

Answer 1

The following are true about SDA default model:

• If you know the beginning pool balance and assume a 200% SDA, you can figure out what the CDR is for each month. (As 200 percent SDA contains twice the value for each period of 100% SDA curve.)

• SDA function for defaults takes the same shape as a PSA function for prepayments. (PSA curve increases for the first 30 months, then become constant thereafter. Similarly, it also happens to SDA, it increases to first 30 month, become constant to 30 to 60 months then starts declining.)

The SDA takes into account maturity of the mortgage. (SDA allows for the probability of default, depending on the age of the loan)

SDA stands for Standard Default Assumption.

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