PT  - JOURNAL ARTICLE
AU  - Stavros Peristiani
TI  - Modeling the Instability of Mortgage-Backed Prepayments
AID  - 10.3905/jfi.2003.319358
DP  - 2003 Dec 31
TA  - The Journal of Fixed Income
PG  - 33--41
VI  - 13
IP  - 3
4099  - https://pm-research.com/content/13/3/33.short
4100  - https://pm-research.com/content/13/3/33.full
AB  - Prepayment plays a critical role in the valuation and performance of mortgage-backed securities. For this reason, market participants have devoted substantial resources to developing formal mathematical models of mortgage prepayment. The author demonstrates that the prepayment function is non-linear and heteroscedastic; prepayments are increasingly more volatile at higher interest rate spreads. The analysis suggests that these unusual properties of pool prepayments are the result of statistical aggregation.