Auto loans - amortising or non amortising?


I’ve heard different things about auto loans. Some people say that they are considered amortising loans and some people say that are non-amortising. What is the correct answer?

Im under the impression that they are non-amortising as schweser says to use a Z-spread for spread analysis purposes (such as credit cards securities). If they were considered to be amortising however wouldn’t they have to be path dependent to use a OAS monte carlo analysis?

Also do we Use monte carlo OAS for High quality home equity or just OAS from binomial

Thanks in advance!

Auto Loans are amortizing and even though it has a prepayment option, it’s usually not exercised so you can use the z-spread. You basically use the OAS monte carlo simulation for MBS and HEL. You would use OAS binomial model for a regular callable bond.

Thanks Ishi93, legend!

Hi Trogulj,

Just sharing this summary , it would help in valuing any security:

  1. Is there option embedded and execersible?

No: Use Z-Spread

Yes: Use OAS and Goto Question2 to decide model.

  1. Is the price path-dependent?

Yes: Use Binomial Model

No: Use Monte Carlo

HI kyh, thanks for your help but I believe that you have the last two mixed up. You use Monte Carlo if it is path dependent otherwise Binomial

Hi Trogulj,

Thanks for pointing that out! =) You’re right.