User:Michalp/Conditional Prepayment Rate

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Conditional Prepayment Rate

Annualized mortgage prepayment rate abbreviated as CPR. Used to characterize prepayment speed of a pool of mortgages. Typically derived from Single Monthly Mortality (SMM) using the relation:

$1+CPR=(1+SMM)^{12}$

where SMM is percentage of a loan pool prepayed in a month (CPR is Monthly CPR)

SMM is often too volatile to estimate prepayment speed, so Average CPR is used to smooth out the month-to-month variation. Given history of pool prepayments, CPR is typically calculated as geometric average of SMM:

$1+CPR=(1+SMM_{t})*(1+SMM_{t-1})*...*(1+SMM_{t-11})$

References

Prepayment_of_loan

Category:Finance Category:Structured finance