medium · Asset-Backed Securities
A $100,000,000 subprime auto pool has a CDR of 15.00%, a severity of 50.00%, and a CPR of 20.00%.
In a single-month simulation, which factor most significantly reduces the 'dollar' amount of net loss in Month 2 compared to Month 1?
- The reduction in pool balance due to CPR and scheduled principal
- The compounding of the CDR into the monthly MDR figure
- The recovery lag effect that first appears in month two of the cycle
- The gradual increase in the loss severity assumption applied over the period
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