Use this procedure to define prepayment assumptions using the Prepayment Model Calculation method.
· Performing basic steps for creating or updating a Prepayment rule
· Creating Prepayment Model rule
1. Define the source for the Market Rate by Selecting an Index (Interest Rate Code) from the list of values.
2. Enter the Spread. The spread is added to the rate from the underlying interest rate curve to determine the market rate.
3. Select an Associated Term: Remaining Term, Reprice Frequency, or Original Term.
4. Specify the Prepayment Model parameters.
§ Select the Start Origination Date using the date picker. Alternatively, you can enter the Start Origination Date in the space provided.
§ Enter the Coefficient (if needed) by which the Prepayment Rate should be multiplied.
This multiple is applied to the instruments for which the origination date lies in the range defined in the Start Origination Date-End Origination Date fields.
§ Select a predefined prepayment model from the Prepayment model Rule list of values. Click the View Details icon to preview the selected Prepayment Model.
§ The system uses the prepayment model assumptions to calculate the prepayment amounts for each period. You need to associate a prepayment model for every Start Origination-End Origination Date range.
§ Click Add Another Row to add additional rows and click the corresponding Delete to delete a row.
You can add as many rows in this model as you require. However you need to enter relevant parameters for each new row.
You can also use the Excel import/export feature to add the Prepayment rate information.
5. 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.