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Mortgage Prepayments and an Analysis of the Wharton Prepayment Model

Author

Listed:
  • Bennett W. Golub

    (BlackRock Financial Management, 345 Park Avenue, New York, New York 10154)

  • Lawrence Pohlman

    (BlackRock Financial Management, 345 Park Avenue, New York, New York 10154)

Abstract

Predicting the behavior of homeowners in paying or prepaying their mortgages is a key feature of both pricing and portfolio management models. All major players in the market of mortgage-backed securities have to deal with the idiosyncracies of mortgage owners. A variety of prepayment models are currently in routine use by Wall Street firms, insurance and pension fund companies, investment advisory firms, and mortgage agencies. However, most of these models are proprietary, and the analytics underlying them are carefully guarded. We evaluate empirically a model developed at the Wharton School, intending to validate a model developed in academia—whose details are available in the open literature [Kang and Zenios 1992]—by using standard industrial tests.

Suggested Citation

  • Bennett W. Golub & Lawrence Pohlman, 1994. "Mortgage Prepayments and an Analysis of the Wharton Prepayment Model," Interfaces, INFORMS, vol. 24(3), pages 80-90, June.
    • Handle: RePEc:inm:orinte:v:24:y:1994:i:3:p:80-90
    DOI: 10.1287/inte.24.3.80
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    Cited by:

    1. Erwin Charlier & Arjan Van Bussel, 2003. "Prepayment Behavior of Dutch Mortgagors: An Empirical Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(2), pages 165-204, June.
    2. Zenios, Stavros A. & Holmer, Martin R. & McKendall, Raymond & Vassiadou-Zeniou, Christiana, 1998. "Dynamic models for fixed-income portfolio management under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 22(10), pages 1517-1541, August.

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