11.3.1 Prepayment Methodologies and Rules

You can use any of the following methods in a Prepayment rule to model the prepayment behavior of instruments:

• Constant Prepayment Method
• Prepayment Model Method
• PSA Method
• Arctangent Calculation Method

• Constant Prepayment Method
  The Constant Prepayment method calculates the prepayment amount as a flat percentage of the current balance.
• Prepayment Model Method
  The Prepayment Model method allows you to define more complex prepayment assumptions compared to the other prepayment methods. Under this method, prepayment assumptions are assigned using a custom Prepayment Model.
• PSA Method
  The PSA Prepayment Method (Public Securities Association Standard Prepayment Model) is a standardized Prepayment Model that is built on a single dimension, remaining term. The PSA curve is a schedule of prepayments, which assumes that prepayments occur at a rate of 0.2 percent CPR in the first month, and increases an additional 0.2 percent CPR each month until the 30th month and prepays at a rate of 6 percent CPR thereafter ("100 percent PSA"). PSA prepayment speeds are expressed as a multiple of this base scenario. For example, a 200 percent PSA assumes annual prepayment rates will be twice as fast in each of these periods -- 0.4 percent in the first month, 0.8 percent in the second month, reaching 12 percent in month 30 and remaining at 12 percent after that. A zero percent PSA assumes no prepayments.
• Arctangent Calculation Method
  The Arctangent Calculation method uses the Arctangent mathematical function to describe the relationship between Prepayment Rates and spreads (coupon rate less market rate).