white paper

The Value of Prepayment Predictions: Part I (Statics)

Nicholas Gunther

Chief Solutions Officer

MBS prepayments are volatile and difficult to predict, especially in the current environment with spiking inflation, rising interest rates and an ongoing pandemic. infima’s disruptive, patent-pending deep learning technologies set new standards for prepayment prediction accuracy, but how much is this greater accuracy worth?

As it turns out, a lot. In this paper we outline simple but rigorous heuristics for evaluating prepayment value, and use them show the value of infima’s increased accuracy can be multiple percentage points of a MBS’ market price, translating into annual yield pickups of tens of basis points, not infrequently over ½ a point per annum.

Request Download