Abstract

http://ssrn.com/abstract=986629
 
 

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Improving Parametric Mortgage Prepayment Models with Non-Parametric Kernel Regression


Michael LaCour-Little


California State University at Fullerton

Michael A. Marschoun


affiliation not provided to SSRN

Clark L. Maxam


Trailcrest Capital Advisors; Braddock Financial Corporation - Tabor Center


Journal of Real Estate Research, Vol. 24, No. 3, 2002

Abstract:     
Developing a good prepayment model is a central task in the valuation of mortgages and mortgage-backed securities but conventional parametric models often have bad out-of-sample predictive ability. A likely explanation is the highly non-linear nature of the prepayment function. Non-parametric techniques are much better at detecting non-linearity and multivariate interaction. This article discusses how non-parametric kernel regression may be applied to loan level event histories to produce a better parametric model. By utilizing a parsimonious specification, a model can be produced that practitioners can use in valuation routines based on Monte Carlo interest rate simulation.

Number of Pages in PDF File: 30

Keywords: prepayment, valuation, mortgages, non-parametric

JEL Classification: R51

Accepted Paper Series


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Date posted: May 16, 2007  

Suggested Citation

LaCour-Little, Michael and Marschoun, Michael A. and Maxam, Clark L., Improving Parametric Mortgage Prepayment Models with Non-Parametric Kernel Regression. Journal of Real Estate Research, Vol. 24, No. 3, 2002. Available at SSRN: http://ssrn.com/abstract=986629

Contact Information

Michael LaCour-Little (Contact Author)
California State University at Fullerton ( email )
5133 Mihaylo Hall
Fullerton, CA 92834-6848
United States
657-278-4014 (Phone)
657-278-2161 (Fax)
Michael A. Marschoun
affiliation not provided to SSRN ( email )
No Address Available
Clark L. Maxam
Trailcrest Capital Advisors ( email )
6781 Nautique Circle
Larkspur, CO 80118
United States
Braddock Financial Corporation - Tabor Center ( email )
1200 17th Street, Suite 880
Denver, CO 80202
United States
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