medium · Asset-Backed Securities collateral

In a single-month simulation, which factor most significantly reduces the 'dollar' amount of net loss in Month 2 compared to Month 1?

1. The reduction in pool balance due to CPR and scheduled principal
2. The compounding of the CDR into the monthly MDR figure
3. The recovery lag effect that first appears in month two of the cycle
4. The gradual increase in the loss severity assumption applied over the period

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