The Value of Prepayment Predictions: Part I (Statics)
Chief of Product, Infima
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.