Option-Theoretic MBS Valuation

US Patent 7574396

New tools for modeling prepayment of principal by obligors behind asset-backed securities are provided. The obligors are categorized into groups for ordered removal from the modeling and valuation process according to their refinancing efficiency, for instance. These tools can be used in a coupled-lattice recursive analysis process to obtain the value of asset-backed securities such as mortgage-backed securities and collateralized mortgage obligations.