Complete Prepayment Models for Mortgage-Backed Securities
The estimation of prepayment rates for pools of mortgages is a critical component in determining the value of mortgage-backed securities---MBS for short---and derivative products. This paper discusses the development of prepayment models for pools of fixed-rate mortgages. The models are complete: calibrated functional forms are given for all of the factors that determine prepayment rates. Hence, the models can be used as benchmarks against the simple models of the Public Securities Association, the Federal Housing Administration experience, or the variety of projected prepayment rates generated by proprietary industry models. The key factors that determine prepayment rates are: (1) refinancing incentive, (2) seasonal variations, (3) seasoning of the mortgage pool, and (4) burnout effect. Each factor is modeled separately and is calibrated using historical data. A multiplicative relationship determines the prepayment rate of the mortgage pool. A novel feature of our model is the use of basis functions that capture the complex interactions between the control variables, i.e., interest rate differentials and time, and the response parameter, i.e., prepayment rates.
Volume (Year): 38 (1992)
Issue (Month): 11 (November)
|Contact details of provider:|| Postal: |
Web page: http://www.informs.org/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:38:y:1992:i:11:p:1665-1685. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.