24.1 Create Prepayment Models

Creating a Prepayment Model comprises the following sub procedures:

  • Creating Prepayment Models
  • Defining the structure of the Prepayment Model
  • Assigning Node Values
  • Procedure to create a Prepayment Model

This table describes key terms used for this procedure.

Table 24-1 Prepayment Model Terms and Descriptions

Term Description
Dimension Influences the prepayment behavior of an instrument. You can build a Prepayment Model using up to three prepayment dimensions. Each dimension maps to an attribute of the underlying transaction (For example, age/term or rate and so on) so the cash flow engine can apply a different Prepayment Rate based on the specific characteristics of the record.
Lookup method

Used to calculate Prepayment Rates for the Prepayment Dimension Values that do not fall exactly on the defined Prepayment Dimension nodes. Oracle Asset Liability Management offers the following Lookup methods:

  • Interpolation : Under this method, the prepayment rates are determined by calculating an exact value on an axis. This method assumes that prepayment speeds change on a straight-line basis between the two nodes and calculates accordingly.
  • Range : Under this method, the Prepayment Rates are determined by calculating a range of values on an axis. This method assumes that the Prepayment speed will remain the same for the entire range.

The following example explains the differences between these two Lookup methods. The following lists show the age and corresponding prepayment rates of instruments.

Age

  • 12
  • 24
  • 36
  • 60

Prepayment Rates

  • 5
  • 10
  • 15
  • 20

Under the Interpolation Method, the Prepayment speeds increase gradually. In this example, the Interpolated Prepayment Rate of an instrument aged 30 months is 12.5%.

This is exactly halfway between the 10% and 15% rates. However, under the Range method, the Prepayment speeds increase in steps. Using the Range Method, the Prepayment Rate is 10%, as this rate percentage would apply to the range from 24 months to 35.9999 months.
Nodes Exact points for each dimension where attribute information has been defined.
Prepayment Rate Calculation

Select the Manual, Integrated Model, or External Models.

For more information, see the Prepayment Rate Calculation section.

Select prepayment rate calculation, which could either, be a manual, integrated, or external model. To create a Prepayment Model, follow these steps:

  1. Navigate to the Prepayment Model Summary Page.
  2. Complete standard steps for this procedure. For more information, see the Create Rules section.