In this October 2007 SPV release we introduce a new preliminary redemption model. A preliminary redemption model uses the information in the published preliminary redemptions (CK93) to improve the mortgage model estimate of the prepayment rate at the next unpublished term date.
The current preliminary redemption model includes two time-dependent functions. This makes it hard to interpret which effect the preliminary redemption observation has on the final prepayment estimate.
The model introduced in this SPV is a revised version of the current model. This new model uses only one time-dependent function, the relative prepayment intensity, and the model has several intuitive interpretations which are explained and exemplified in the theme.
We estimate both the new and old model using five years of data. Generally, the new model looks promising, and we have decided to implement the model in RIO.
Estimated parameters from the new model are delivered as a part of the SPV service from this release and onwards. The new model will be used in future versions of the DMBS service as well.