Prepayment modelling of (Australian) mortgage loans

Abstract

The thesis is primarily an empirical investigation of Australian mortgage loan prepayment from a modelling perspective. The first objective of the research is to develop a variable-rate loan prepayment model that takes into account the Australian mortgage market structure. The model proves very successful when tested empirically, and is able to explain the partial prepayment features of the Australian market as well as full prepayments. Secondly, Australian fixed-rate prepayment is investigated. Empirical tests are carried out on the non-linear Stanton model and a linear model using Australian prepayment data. Both models perform very well. Next a combined model is formed by combining the (fixed-rate) Stanton model with a variable-rate model. The combined model again proves very successful when empirically tested. Show more