Trying to find the best way to calculate effective maturity for prepaying securities (non-fixed income). My current understanding is that the link below is the best definition for effective maturity.


However, prepaying securities don't have defined cashflows. Would the best way to calculate effective maturity be to take WAL * 365 * 2 or just set the effective maturity of a security equal to the last date of the current cashflows available for a security?

  • is effective maturity the average amount of time it will take to pay off a security or the expected maturity date?
    – MattSamm
    Oct 17, 2022 at 16:57
  • What do you mean by "prepaying securities"? Effective Maturity is the date on which you expect the security to mature (finish paying), which may be earlier that the stated for bonds that have optionality.
    – D Stanley
    Oct 17, 2022 at 18:29
  • The Stack Overflow link is broken. What was that question about?
    – Flux
    Oct 17, 2022 at 23:40
  • @DStanley ABS or MBS securities. Securities where the cashflows are not defined. Someone could decide to prepay their mortgage today, or in a year, or stick to the scheduled payments. Cashflows are used to try and predict the future payments based on prepayment models of economic conditions, however they are just predictions that change over time. I'm not sure if effective maturity should only be defined for fixed income securities or to use the most recent expected cashflows to define the effective maturity for these types of securities.
    – MattSamm
    Oct 18, 2022 at 17:44


You must log in to answer this question.

Browse other questions tagged .