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Method of and apparatus for administering an asset-backed security using coupled lattice efficiency analysis

  • US 20030105696A1
  • Filed: 12/04/2002
  • Published: 06/05/2003
  • Est. Priority Date: 12/04/2001
  • Status: Active Grant
First Claim
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1. A method of administering an asset-backed security, comprising the steps of:

  • a. gathering specifications of aspects of a plurality of assets, said assets generating cashflows from payment by obligors of principal and interest, wherein a level of cashflows from said assets is susceptible to change due to prepayments by said obligors;

    b. forming an asset pool from said plurality of assets according to at least one common aspect of said pooled assets;

    c. deriving an asset-backed security from said asset pool;

    d. distributing cashflows based on at least one of principal payments and interest payments from said obligors whose assets are members of said asset pool;

    e. modeling asset pool prepayment behavior including the sub-steps of;

    i. defining refinancing efficiency categories of obligors into at least three buckets according to an expected efficiency of obligors in deciding when to refinance, ii. partitioning the assets in the asset pool into asset pool efficiency buckets according to said refinancing efficiency buckets, iii. removing scheduled payments and core prepayments of principal which are not related to changing interest rates pro-rata from all asset pool efficiency buckets, iv. attributing excess of actual over scheduled prepayments to obligors refinancing assets in said asset pool, and v. removing assets from said asset pool in a preset order according to the defined ordered refinancing buckets of obligors to reflect refinancing of assets by obligors and thus obtain a model of remaining pool; and

    f. determining the current value of the asset-backed security, said current value determining step including the sub-steps of;

    i. determining a core payment rate cash flow for said asset pool, ii. generating a coupled asset-backed security/asset lattice from input interest rate environment, iii. determining “

    nodes”

    on lattice when each defined refinancing category of said asset pool would refinance using said coupled asset-backed security/asset lattice, iv. determining future cash flow from principal payments paid by asset pool using said model of remaining pool, v. determining asset-backed security cashflow including both principal and interest payments, and vi. determining a value for said asset-backed security by discounting and adding cash flows.

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