Public Securities Association Standard Prepayment Model - PSA
- An assumed monthly rate of prepayment that is annualized to the outstanding principal balance of a mortgage loan.
The PSA model is one of several models used to calculate and manage prepayment risk. The PSA model acknowledges that prepayment assumptions will change during the life of the obligation and affect the yield of the security. The model assumes a gradual rise in prepayments, which peaks after 30 months. The standard increase amount is 0.2%, so an indicator of 100% implies that the rate will increase monthly by 0.2% (the standard increase), whereas an indicator of 0% implies no monthly changes of the prepayment rate.
Investment dictionary. Academic. 2012.
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