Abstract: A method and system for calculating an indicator which can be used for determining whether to refinance an outstanding debt instrument (such as a mortgage) with a new debt instrument (such as another mortgage), which includes the steps of (1) determining the change in the present value of the cash flows using a set of discount factors; (2) determining the change in option values using a probabilistic model of future discount factors; and (3) determining the indicator reflecting whether refinancing is probabilistically financially advisable by comparing the change in cash flow values with the change in option values. These steps can be implemented by a computer which includes a CPU and a computer code operatively associated with the CPU. The calculated indicator or its derivative, reflecting whether refinancing is probabilistically financially advisable, can be displayed on a visual display, communicated by an audio device or used to automatically commence refinancing.

Abstract: New tools for modeling prepayment of principal by obligors behind asset-backed securities are provided. The obligors are categorized into groups for ordered removal from the modeling and valuation process according to their refinancing efficiency, for instance. These tools can be used in a coupled-lattice recursive analysis process to obtain the value of asset-backed securities such as mortgage-backed securities and collateralized mortgage obligations.

Abstract: A method and system for calculating an indicator which can be used for determining whether to refinance an outstanding debt instrument (such as a mortgage) with a new debt instrument (such as another mortgage), which includes the steps of (1) determining the change in the present value of the cash flows using a set of discount factors; (2) determining the change in option values using a probabilistic model of future discount factors; and (3) determining the indicator reflecting whether refinancing is probabilistically financially advisable by comparing the change in cash flow values with the change in option values. These steps can be implemented by a computer which includes a CPU and a computer code operatively associated with the CPU. The calculated indicator or its derivative, reflecting whether refinancing is probabilistically financially advisable, can be displayed on a visual display, communicated by an audio device or used to automatically commence refinancing.

Abstract: New tools for modeling prepayment of principal by obligors behind asset-backed securities are provided. The obligors are categorized into groups for ordered removal from the modeling and valuation process according to their refinancing efficiency, for instance. These tools can be used in a coupled-lattice recursive analysis process to obtain the value of asset-backed securities such as mortgage-backed securities and collateralized mortgage obligations.

Abstract: A method and system for determining effectiveness of a hedge on a hedged item is disclosed. The method and system includes determining a standard deviation of changes in value of a hedged item over a known time frame; determining a standard deviation of a combination of the changes in value of the hedged item and changes in value of a hedging vehicle over the known time frame; and, determining a ratio between the determined standard deviations. In another aspect of the invention, a volatility reduction measure is determined as the compliment of the determined ratio and effectiveness is determined when the volatility reduction measure is above a known level.