Along with a discussion of the specific subjects described
below, the standard models including the DMBS model have been reestimated.
In this release of SPV two main subjects are treated.
- Modification of group level prepayments, to yield a
series level prepayment exactly equal to the observed.
- A discussion of how to fix prepayments at next
unpublished term date.
1.
A part of the core of the SPV estimation methodology, is
the generation of prepayments on group level.
The engine for generating these group level prepayments
was in place before the SPV service became a reality, and has always yielded
satisfactory results. However, after a change in the production facility of this
engine we have become able to do much more elaborate modifications of the method
applied.
As a result of this change we are able to introduce a
method, of modifying the generated group level prepayments, as to match exactly
the actual series level prepayment rate.
Using these scaled prepayments we estimate two models, one
where the loan groups are divided into three depending on loan size, like the
DMBS model, and one where the loan groups are divided into small/large and
bond/cash loans. We find a significant increase in the fit to prepayments of the
individual groups, while there is only a modest increase in the series level fit.
2.
In the SPV release of the 4th quarter of 2002 a number of
caveats concerning fixing of prepayments were discussed. In the new version of
RIO4 these problems will be solved, and in this release of SPV a solution method
is introduced along with pricing examples.