The Prepayment Risk key figure measures the sensitivity towards a scaling of all future prepayments. We have applyed in a model trying to explain the option adjustes spreads (OAS).
This have several applications:
1. More realistic price yield relationship.
2. Easy way to do scenario analysis with a model for the OAS of all MBS at the end of the return period.
More information and examples can be found in:
"Sætter investorerne pris på konverteringsrate risiko" by Svend Jakobsen and Mikkel Svenstrup
The article can be bought at Finansinvest.