HI guys, Hopefully someone can help. I know and understand what the SMM is. I also know how to calculate the ABS from the SMM. But I don’t know and can’t find what the ABS actually is! I mean what it represents and stands for. If anyone could help with this that would be great! Thanks Chris
Cheeky little bump for this, I am desperate!!
absolute payment speed similar in concept as CPR, but for auto loans
- ABS is fixed 2. SMM(n-th month) = ABS / (1- (n-1)*ABS) it’s quite different from the SMM / CPR on mortgage prepayment. CPR (annual), SMM (monthly) (1+SMM) ^ 12 = 1 + CPR => SMM = (1+CPR)^(1/12) - 1
Thanks for the help guys I was wondering if there was more of a wordy answer though, I get the formulae, just need to be able to explain it in my head!!
found in the book: - Reading 58 Asset-backed sector of the bond market > Auto-loan Prepayments for auto loan-backed securities are measured in terms of the absolute prepayment speed, denoted by ABS.17 The ABS is the monthly prepayment expressed as a percentage of the original collateral amount. The SMM (monthly CPR) expresses prepayments based on the prior month’s balance. *footnote* The only reason for the use of ABS rather than SMM/CPR in this sector is historical. Auto loan-backed securities (which were popularly referred to at one time as CARS (Certificates of Automobile Receivables)) were the first non-mortgage assets to be developed in the market. (The first non-mortgage asset-backed security was actually backed by computer lease receivables.) The major dealer in this market at the time, First Boston (now Credit Suisse First Boston) elected to use ABS for measuring prepayments. You may wonder how one obtains “ABS” from “absolute prepayment rate.” Again, it is historical. When the market first started, the ABS measure probably meant “asset-backed security” but over time to avoid confusion evolved to absolute prepayment rate (Level II Volume 5 Alternative Asset Valuation and Fixed Income , 5th Edition. Pearson Learning Solutions p. 454).