TY - JOUR T1 - Modeling the Instability of Mortgage-Backed Prepayments JF - The Journal of Fixed Income SP - 33 LP - 41 DO - 10.3905/jfi.2003.319358 VL - 13 IS - 3 AU - Stavros Peristiani Y1 - 2003/12/31 UR - https://pm-research.com/content/13/3/33.abstract N2 - 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. ER -