|Several asset categories in A/L BENCHMARKS include a basic base-case prepayment speed assumption. In order to customize the results to their bank, clients provide their own base case prepayment speed. Typically we like to see speeds specified as either CPR (conditional prepayment rate) or PSA (Public Securities Association). If you capture prepayment data for your various loan portfolios using SMM (single monthly mortality) you can use the conversion tool shown at the right to convert the speed to PSA or CPR. |
This conversion is based on the routines specified in Modeling structured finance cash flows with Microsoft Excel By Keith A. Allman.
Also, here’s a good discussion of prepayment on riskglossary.com.