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Prepayment Risk Modeling for Residential Mortgage Backed Securities: The Unique Indian Experience

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  • Gireesh Chandra Tripathi

    (IMT Ghaziabad, India)

Abstract

The first public issue of securitized instruments is overdue in Indian capital market (SEBA 2008). Development of suitable pricing models would be helpful in trading of these instruments. This paper is focused on prepayment risk of housing loan pools. Prepayment estimation is useful to project the cash-flows, which are essential for pricing. A few prevalent models and their variations are tested and suitably adjusted to make them readily applicable on the Indian data. It is found that the prepayment can best be explained by an adjusted Chinloy model with contracted rate (and not the current rate), age of the mortgage and burnout. This behavior is unique because the current rate does not have any bearing on the prepayments in India.

Suggested Citation

  • Gireesh Chandra Tripathi, 2012. "Prepayment Risk Modeling for Residential Mortgage Backed Securities: The Unique Indian Experience," International Journal of Information Systems in the Service Sector (IJISSS), IGI Global, vol. 4(2), pages 72-86, April.
    • Handle: RePEc:igg:jisss0:v:4:y:2012:i:2:p:72-86
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