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Andrew Kalotay Associates to Receive Patent for CLEAN MBS Model

The approach can calculate 14,000 securities per minute per minute, or 100 times the competition, the company contends.

Andrew Kalotay Associates, Inc., has been notified that the US Patent Office will grant a patent for its CLEAN MBS (mortgage backed securities) model, according to the company issued release.

CLEAN, which stands for Coupled Lattice Efficiency Analysis, determines refinancing based on mortgagor credit and then discounts the resulting cash flow using the MBS issuer’s credit. The approach allows for exceptional speed —14000 securities per minute, or roughly 100 times faster than the competition—without compromising accuracy, according to the company in its release.

By tracking mortgages with a higher propensity to refinance, CLEAN automatically captures “burnout (refinance fatigue following period of low interest rates). In addition, based approach ensures consistency with the valuation of callable agency debentures, said the company.

“A major breakthrough is that our prepayment model is truly market-implied. We calibrate to current TBA (To Be Announced) prices and mortgage rates, in contrast to the conventional backward-looking models,” commented Dr. Andrew Kalotay, the firm’s founder in the release.

Many trading and risk management platforms have integrated CLEAN to take advantage of its accuracy, speed, internal consistency and external consistency, said the company.

Kalotay describes the methodology in “An Option-Theoretic Approach to MBS Valuation,” which appears in the 6th edition of Frank Fabozzi’s The Handbook of Mortgage-Backed Securities and is available on the Kalotay website (https://www.kalotoay.com/CLEAN).

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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