User:Michalp/Conditional Prepayment Rate

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:

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