Defining the Constant Prepayment Method

Use this procedure to define prepayment assumptions using the Constant Prepayment method.

Prerequisites

Performing basic steps for creating or updating a Prepayment rule.

Procedure

Users also have two options for determining the timing of the Constant Prepayment assumption. The options include:

·        Use Payment Dates: This is the default option. If this option is selected, then Constant Prepayment runoff will occur on scheduled payment dates only.

·        User Defined Prepayment Tenors: If this option is selected, users can specify any runoff timing. For example, users might choose to define the prepayment to runoff on the first day of the forecast.

To define constant prepayment within the Prepayment Rule, follow the steps given in below sections:

·        Use Payment Dates

·        User Defined Prepayment Tenors

Use Payment Dates

1.    Select the "Use Payment Dates" option.

2.    Select the Start Origination Date using the date picker. Alternatively, you can enter the Start Origination Date in the space provided.

3.    Enter the annual prepayment rate percent that you want to apply to the instruments having origination dates in a particular Start Origination-End Origination Date range.

4.    Click Add Row to add additional rows and click the corresponding Delete icon to delete a row.

You can add as many rows in this table as you require. However you need to enter relevant parameters for each new row.

5.    You can also use the Excel import/export feature to add the Prepayment rate information.

6.    You can use Data Input Helper feature. For more information, refer to Data Input Helper.

7.    Define Seasonality assumptions as required to model date specific adjustments to the annual prepayment rate. Inputs act as multiplier, For Example, an input of 2 will double the prepayment rate in the indicated month.

User Defined Prepayment Tenors

1.    Select the User Defined Prepayment Tenors option. This option allows you to specify the term and multiplier to prepayment date for the particular row.

2.    You can calculate the prepayment rate based on Current/Reducing Balance and Annual/De-annual Prepayment Rate. Select the Balance Type as Current Balance or Reducing Balance.

If the Balance Type is selected as Current Balance, then the prepayment amount will be calculated using CUR_PAR_BAL on As of Date. That is, without reducing the balance by any payment/prepayment that may have occurred between as of date and prepayment date.

If the Balance Type is selected as Reducing Balance, then the prepayment amount will be calculated using balance as on Prepayment Date. That is, after reducing the CUR_PAR_BAL by any payment/prepayment that may have occurred between as of date and prepayment date.

3.    Select the Prepayment Rate Type as Annual Prepayment Rate Or De-annual Prepayment Rate.

When Annual Prepayment Rate is selected then prepayment rate entered in screen is directly used. In the other case, rate entered in screen in de-annualised before calculating prepayment amount.

4.    Enter the Start Origination Date and End Origination Date ranges, add additional ranges as required using the Add Row button.

5.    Enter the term to runoff tenor and multiplier for each of the date ranges.

6.    Enter the annual prepayment rate percent for each of the date ranges.

7.    Enter 'Repeat' if you want same prepayment to occurs multiple times. By default it is set to 1.

8.    Click Add Row to add additional runoff % rows and click the corresponding Delete icon to delete a row.

9.    Define Seasonality assumptions as required to model date specific adjustments to the annual prepayment rate. Inputs act as multiplier, for example, an input of 2 will double the prepayment rate in the indicated month.