In this release of SPV we focus on newly opened callable bonds. Usually when a new callable bond is issued there will be an initial period of time where no information on debtor distributions is available. We take a look at some of the methods which could be applied in order to generate artificial debtor distributions for new bonds making it possible to calculate key figures as soon as the bonds open. We investigate the performance of calculations based on the different methods with the purpose of finding the assumption which best approximates the actual compositions of borrowers.
Our test results show that serveral different methods of generating debtor information for new bonds can be used with positive outcome. The four best performing methods uses debtor distributions based on market averages, the bonds with the highest issuing activity, similar closed bonds and a prepayment model estimated without subdivision of the borrowers.
The simplest methods to use among the best performing methods are the methods using market averages and issuing activity. Using either of these two methods we will always be able to generate debtor distributions for new bonds. Not all methods examined have this property.