medium · Debt Capital Markets credit-ratings-risk
Under the PSA (Public Securities Association) prepayment convention, what does '100% PSA' represent?
- The assumption that exactly 100 individual homes within the underlying pool are sold every single month.
- A constant 100% annual probability that each and every borrower in the pool refinances their mortgage.
- A prepayment rate fixed at precisely double the prevailing SOFR benchmark rate over the security's life.
- A CPR that starts at 0.20% in month 1 and increases by 0.20% each month until reaching 6.00% in month 30.
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