Modeling Prepayment Behavior In Financial Transactions Backed By Automobile Loans

Abstract

Securitization is a powerful financing tool that has gained prominence in recent time. In this study, securitization refers to the process whereby securities are issued to investors using a dedicated pool of automobile loans as collateral. A total of 206 outstanding auto loan-backed securities are used to analyze their prepayment risk. A thorough analysis of voluntary prepayment behavior identifies the key variables that influence prepayment behavior. These variables explain about 69% of its variation.