Glossary

Acronyms

• APR – Annual Percentage Rate, an annualised measure of borrowing cost expressed as a percentage of principal.

• CDF – Cumulative Distribution Function, the probability that a random variable takes a value less than or equal to a given point.

• DSCR – Debt-Service Coverage Ratio, the quotient of operating income divided by debt service obligations.

• IRR – Internal Rate of Return, the discount rate that makes a series of cash flows have zero net present value.

• KS – Kolmogorov–Smirnov statistic, a non-parametric test metric measuring the maximum distance between empirical and theoretical distributions.

• LGD – Loss Given Default, the share of exposure that is not recovered when a borrower defaults.

• MACRS – Modified Accelerated Cost Recovery System, a tax depreciation regime prescribing accelerated write-off schedules.

• NPV – Net Present Value, the sum of cash flows discounted back to today’s value.

• PSA – Public Securities Association prepayment model, a benchmark curve describing the speed of mortgage prepayments.

• RNG – Random Number Generator, an algorithm or device that produces a sequence of random or pseudo-random values.

• WAL – Weighted Average Life, the average time until principal is repaid weighted by the amount of principal outstanding.