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Overview Motivation: Why prepay? Prepayment models a. 100% PSA More general form of k% PSA - CPR vs. SMM Digression: Weighted Average Life of

Overview Motivation: Why prepay? Prepayment models a. 100% PSA More general form of k% PSA - CPR vs. SMM Digression: Weighted Average Life of a loan b. Refinancing incentive model c. Recombining tree approach Digression: Forward vs. spot rate d. Option Adiusted Spread (OAS)

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