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An Improved Way to Model Prepayments
Jun 1, 1994
Barra has developed an accurate short-term prepayment model and combined it with an existing longer-term prepayment model. Clearly, implementing this short-term component to Barra's prepayment model dramatically improves its overall prepayment forecasts. In addition, it is imperative to adroitly integrate this component without jeopardizing the long-term conditional forecasting required for OAS analysis. The end product is an improved prepayment model that fits within the framework of traditional OAS analysis of mortgage-backed securities.