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Path-dependent Prepayment Function
To be able to apply path-dependent prepayment functions in the valuation model we have implemented an augmented state-space approach.
This feature is currently available through the function rw_TSCalcBondPD.
This approach allows us to use Pool- or BurnOut factors in the prepayment function. This figure illustrates the OAValue as a function of parallel shifts in the yield curve using the new approach compared to just keeping the pool-factor constant. Also the price found by keeping the OAS constant is included.
More information regarding the method can be found in:
Valuation of Path-Dependent Interest Rate Derivatives in a Finite Difference Setup