We have studied the infrared transmission spectrum and the optical performance of HgCdTe photodiodes containing a linear composition gradient in the active layer. Our objectives were to enable the prediction of the optical performance of a photodiode at 77K, based on the easily and nondestructively measured transmission spectra, as well as to gain a better understanding of the effects of the grading on the optical performance. Consequently, we address three issues here. We first establish improved characterization techniques that can provide accurate values of the necessary material parameters such as gradient in composition. Second, we present a model that can predict the optical response of a diode, based oil the material properties and the diode's geometry. Third, we use the above-mentioned model for the theoretical calculations of the effects of the grading and the resulting built-in electric field on the diode's optical response.