Recoveries on Defaulted Debt
|
|
|
- Bethanie Hoover
- 8 years ago
- Views:
Transcription
1 Recoveries on Defaulted Debt Michael B. Gordy Federal Reserve Board May 2008 The opinions expressed here are my own, and do not reflect the views of the Board of Governors or its staff. M.B. Gordy (FRB) Recoveries May / 17
2 Overview Recovery is the post-default value of a debt instrument. Research on credit risk has focused overwhelmingly on default risk, often treating recovery as a nuisance parameter. Credit spreads and capital contributions roughly linear in expected recovery, and recovery varies tremendously: variation across debt instruments of an obligor; variation from obligor to obligor within a year; variation in average recovery from year to year. Today s talk will review empirical stylized facts on recovery and approaches to modeling. How to measure recovery on defaulted debt instruments? The effect of the business cycle on recovery. An obligor-level perspective on recovery. M.B. Gordy (FRB) Recoveries May / 17
3 Variation across and within debt class Source: Figure 6.1 in D. Duffie & K.J. Singleton, Underlying data from Moody s. M.B. Gordy (FRB) Recoveries May / 17
4 Recovery rate distribution may be bimodal Source: Figure 12.2 in A. Resti & A. Sironi, Data for a medium-sized European bank. M.B. Gordy (FRB) Recoveries May / 17
5 How should recovery be defined? Post-default market price as theoretical ideal. Ideal measure when distressed debt is traded in a liquid market. Ties recovery to the default event. Gain/Loss from default date through resolution is a return on vulture investment. Trouble is that market may not exist for some classes of debt. Traded prices may be sensitive to liquidity. Most studies based exclusively on this measure. Recovery at emergence ( workout recovery). Might be in cash (liquidation) or new securities (reorganization). Must net out the administrative costs of the workout. Main problem is rate at which to discount back to date of default. Best (only?) data available on non-traded or thinly traded instruments. M.B. Gordy (FRB) Recoveries May / 17
6 Post-default price predicts workout recovery? Recovery at emergence from S&P LossStat database. M.B. Gordy (FRB) Recoveries May / 17
7 Systematic recovery risk? Prior to default, recovery is uncertain. If this risk is idiosyncratic, then it is diversifiable, so should demand no risk premium. Recovery parameter in pricing model can be estimated using historical recovery data for similar instruments. If only data are for workout recoveries, then risk-free yield curve gives appropriate discount! If recoveries correlated with state of credit cycle, then recovery risk is not fully diversifiable. Pricing requires the risk-neutral expected recovery, typically lower than historical average. For discounting workout recoveries, need appropriate spread over risk-free rate. In principle, the hurdle rate for a monoline vulture fund would give a good proxy. Might approximate by risk-free yield curve plus a constant. Original coupon rate is widely used but absurd. M.B. Gordy (FRB) Recoveries May / 17
8 Recovery risk in capital models For a large portfolio, VaR at q percentile converges to expected portfolio loss conditional on stress event corresponding to q th percentile worst state of the world. Consider a simple book value capital model. Calling our stress event X q, capital contribution for loan l is E[LGD l p l X q ] = E[LGD l X q ] p l (X q ) where p is default probability as function of X and LGD is 1 R. If recovery risk is purely idiosyncratic, then E[LGD l X q ] = E[LGD l ] = ELGD l, and so uncertainty in recovery is immaterial in large portfolio. But if recovery depends on credit cycle, we need to estimate a suitable downturn LGD. M.B. Gordy (FRB) Recoveries May / 17
![Calling our stress event X q, capital contribution for loan l is E[LGD l p l X q ] = E[LGD l X q ] p l (X q ) where p is default probability as function of X and LGD is 1 R.](/docs-images/51/14545358/images/page_8.jpg "If recovery risk is purely idiosyncratic, then E[LGD l X q ] = E[LGD l ] = ELGD l, and so uncertainty in recovery is immaterial in large portfolio.")
9 Basel II treatment Internal Ratings-Based approach of Basel II based on an asymptotic model of this sort. Model extended to mark-to-market loss (maturity effects). Foundation IRB imposes rule-based LGD. Advanced IRB uses bank estimates of downturn LGD (DLGD) corresponding to economic downturn conditions. DLGD is no less than long-run default-weighted average historical LGD for facility type. Recognition that sensitivity of LGD to economic cycle can vary across exposures. Need data spanning at least one complete economic cycle. Explicit recognition that best practice is in early stages here. Pykhtin (Risk, 2003) offers a simple model of DLGD that is consistent with IRB model. M.B. Gordy (FRB) Recoveries May / 17
10 Empirical evidence on systematic recovery risk Frye (Risk, 2000) first to show that recovery falls in recession. Altman, Brady, Resti & Sironi (J. Business, 2005) offer a more comprehensive analysis. Acharya, Bharath & Srinivasan (JFE, 2007) show recovery is tied to distress in obligor s own industry. M.B. Gordy (FRB) Recoveries May / 17
11 Recoveries and the business cycle Source: Altman, Resti & Sironi (2004) based on data for US high yield bond market. M.B. Gordy (FRB) Recoveries May / 17
12 Digression: Recovery in CDO pricing models Example to illustrate importance of recovery risk, both idiosyncratic and systematic. Conventional CDO pricing models impose fixed recovery rate of 40%. Implies zero spread on super-super-senior tranche of %, but spread recently bps. Most natural way to reconcile tranche spreads is to assume that recovery rate falls as default rate increases, i.e., systematic risk. Fixed recovery rate also implies discrete loss distribution in pool, which can distort pricing of equity tranche. M.B. Gordy (FRB) Recoveries May / 17
13 Recovery in credit pricing models Credit risk models mainly of two varieties: Structural models, following Merton (1974), in which debt is viewed as a derivative on the obligor s assets. Reduced-form models, following Duffie & Singleton (1999), in which we directly model the term structure of default probabilities. In reduced-form models, recovery is merely a parameter to specify, and is in no way explained within the model. Structural models ought to explain recovery, but in practice do so very poorly. In plain-vanilla Black & Cox (1976) model Asset value evolves smoothly over time. Default occurs when asset value crosses a default threshold. Threshold is exogeneous, typically calibrated as face value of debt. Moody s KMV imposes a slight variant. Implies recovery of 100% less liquidation costs. Need a richer model of the default threshold, built on endogenous behavior of a distressed obligor and its creditors in the end game. M.B. Gordy (FRB) Recoveries May / 17
14 Instrument-level vs Firm-level recovery Empirical recovery literature has focused on predicting performance at instrument level. But debt claims on defaulted firms are collar options on the borrower s assets. Can also view debt claims as akin to CDO tranches. Here the assets of the firm correspond to the CDO collateral pool. Cannot properly assess expected recovery for an instrument independently from its place in the capital structure. Seniority label is of secondary importance (Keisman). Firm-level recovery studied by Hamilton & Carty (1999) and Carey & Gordy (2007). M.B. Gordy (FRB) Recoveries May / 17
15 Debt instruments as collar options Seniority Class of Claim Value of Firm at Emergence M.B. Gordy (FRB) Recoveries May / 17
16 Firm-level vs. Instrument-level Recovery Normal kernel, bandwidth= Firm Instrument Recovery at Emergence (percent) Recovery at emergence from S&P LossStat database. M.B. Gordy (FRB) Recoveries May / 17
17 Implications of firm-level view Carey & Gordy (2007) show that firm-level recovery strongly increasing with share of bank loans in firm s debt. Going from no bank debt to all bank debt increases expected recovery by percentage points. Debt structure has bigger effect than systematic risk and borrower characteristics. Offer model in which banks play a crucial role in forcing insolvent borrowers into bankruptcy. Model emphasizes financial covenants in loan agreements, which allow bank to recall loan to distressed borrower. Early foreclosure on such borrowers preserves asset-value available to creditors. Incorporating loan share in estimating expected recovery would improve performance of pricing and risk management models. M.B. Gordy (FRB) Recoveries May / 17
Default Recovery Rates and LGD in Credit Risk Modeling and Practice
Default Recovery Rates and LGD in Credit Risk Modeling and Practice Edward I. Altman** Abstract Evidence from many countries in recent years suggests that collateral values and recovery rates on corporate
An Empirical Study of the Returns on Defaulted Debt and the Discount Rate for Loss-Given-Default
An Empirical Study of the Returns on Defaulted Debt and the Discount Rate for Loss-Given-Default Draft: May 2009 J.E.L. Classification Codes: G33, G34, C25, C15, C52. Keywords: Recoveries, Default, Loss
The Bank as Grim Reaper
The Bank as Grim Reaper Debt composition and recoveries on defaulted debt Mark S. Carey and Michael B. Gordy The opinions expressed are our own, and do not necessarily reflect those of the Board of Governors
Basel Committee on Banking Supervision. An Explanatory Note on the Basel II IRB Risk Weight Functions
Basel Committee on Banking Supervision An Explanatory Note on the Basel II IRB Risk Weight Functions July 2005 Requests for copies of publications, or for additions/changes to the mailing list, should
Reduced-form Models: Preliminaries
Reduced-form Models: Preliminaries Viral V. Acharya and Stephen M Schaefer NYU-Stern and London Business School (LBS), and LBS Credit Risk Elective Spring 2009 Reduced-form Models Motivation Firm assets
RECOVERY RATES, DEFAULT PROBABILITIES AND THE CREDIT CYCLE
RECOVERY RATES, DEFAULT PROBABILITIES AND THE CREDIT CYCLE Max Bruche and Carlos González-Aguado CEMFI Working Paper No. 0612 September 2006 CEMFI Casado del Alisal 5; 28014 Madrid Tel. (34) 914 290 551.
The 2007-09 financial crisis illustrated the importance of healthy
What Determines Creditor Recovery Rates? By Nada Mora The 2007-09 financial crisis illustrated the importance of healthy banks for the overall stability of the financial system and economy. Because banking
Loss Given Default and Economic Capital
Loss Given Default and Economic Capital Jon Frye Senior Economist Federal Reserve Bank of Chicago 312-322-5035 Jon.Frye@Chi.FRB.org July 4, 2004 Submitted to appear in Economic Capital Ashish Dev, ed.,
BIS Working Papers. The link between default and recovery rates: effects on the procyclicality of regulatory capital ratios.
BIS Working Papers No 113 The link between default and recovery rates: effects on the procyclicality of regulatory capital ratios by Edward I Altman, Andrea Resti and Andrea Sironi Monetary and Economic
Chapter 22 Credit Risk
Chapter 22 Credit Risk May 22, 2009 20.28. Suppose a 3-year corporate bond provides a coupon of 7% per year payable semiannually and has a yield of 5% (expressed with semiannual compounding). The yields
Bankruptcy Filing and the Expected Recovery of Corporate Debt
Bankruptcy Filing and the Expected Recovery of Corporate Debt Wei Wang Queen s University April 13, 2007 3rd International Conference on Credit and Operational Risk HEC, Montreal (C) Wei Wang 2007 1 Motivations
Analyzing and Explaining Default Recovery Rates
A Report Submitted to The International Swaps & Derivatives Association By Edward I. Altman* Andrea Resti** And Andrea Sironi*** December 2001 *Max L. Heine Professor of Finance and Vice Director of the
Lecture 7 Structured Finance (CDO, CLO, MBS, ABL, ABS)
Lecture 7 Structured Finance (CDO, CLO, MBS, ABL, ABS) There are several main types of structured finance instruments. Asset-backed securities (ABS) are bonds or notes based on pools of assets, or collateralized
Application of Quantitative Credit Risk Models in Fixed Income Portfolio Management
Application of Quantitative Credit Risk Models in Fixed Income Portfolio Management Ron D Vari, Ph.D., Kishore Yalamanchili, Ph.D., and David Bai, Ph.D. State Street Research and Management September 26-3,
on Defaulted Loans and Bonds
A Flexible Approach to Modeling Ultimate Recoveries on Defaulted Loans and Bonds Edward Altman Egon Kalotay September 30, 2010 Stern School of Business, New York University. E-mail: ealtman@stern.nyu.edu,
Expected default frequency
KM Model Expected default frequency Expected default frequency (EDF) is a forward-looking measure of actual probability of default. EDF is firm specific. KM model is based on the structural approach to
BERYL Credit Pulse on High Yield Corporates
BERYL Credit Pulse on High Yield Corporates This paper will summarize Beryl Consulting 2010 outlook and hedge fund portfolio construction for the high yield corporate sector in light of the events of the
FLOATING RATE BANK LOANS: A BREAK FROM TRADITION FOR INCOME-SEEKING INVESTORS
FLOATING RATE BANK LOANS: A BREAK FROM TRADITION FOR INCOME-SEEKING INVESTORS With about $713 billion in assets, the bank loan market is roughly half the size of the high yield market. However, demand
ESTIMATING EXPECTED LOSS GIVEN DEFAULT
102 ESTIMATING EXPECTED LOSS GIVEN DEFAULT ESTIMATING EXPECTED LOSS GIVEN DEFAULT Petr Jakubík and Jakub Seidler This article discusses the estimation of a key credit risk parameter loss given default
Creditor Recovery: The Macroeconomic Dependence of Industry Equilibrium. Nada Mora June 2013; Revised December 2014 RWP 13-06
Creditor Recovery: The Macroeconomic Dependence of Industry Equilibrium Nada Mora June 2013; Revised December 2014 RWP 13-06 Creditor Recovery: The Macroeconomic Dependence of Industry Equilibrium NADA
CREDIT RISK. Estimation Techniques
CREDIT RISK Estimation Techniques TABLE OF CONTENTS Introduction... 3 Regulatory Framework... 4 Standardized Approach... 6 Internal Ratings-Based Approach... 8 Probability of Default IRB... 9 Pooling Approach...
CREDIT RISK MANAGEMENT
GLOBAL ASSOCIATION OF RISK PROFESSIONALS The GARP Risk Series CREDIT RISK MANAGEMENT Chapter 1 Credit Risk Assessment Chapter Focus Distinguishing credit risk from market risk Credit policy and credit
At first glance, small business
Severity of Loss in the Event of Default in Small Business and Larger Consumer Loans by Robert Eales and Edmund Bosworth Westpac Banking Corporation has undertaken several analyses of the severity of loss
FLOATING RATE BANK LOANS: A BREAK FROM TRADITION FOR INCOME-SEEKING INVESTORS. Why does the bank loan sector remain so attractive?
FLOATING RATE BANK LOANS: A BREAK FROM TRADITION FOR INCOME-SEEKING INVESTORS Bank loans present a compelling income opportunity and a portfolio diversifier that provides protection against traditional
Loss Given Default What is your potential loss position in the current volatile environment?
Loss Given Default What is your potential loss position in the current volatile environment? Complete your credit risk assessments with recovery analyses. Evaluate potential economic losses for a range
Determinants of Recovery Rates on Defaulted Bonds and Loans for North American Corporate Issuers: 1983-2003
Special Comment December 2004 Contact Phone New York Praveen Varma 1.212.553.1653 Richard Cantor Determinants of Recovery Rates on Defaulted Bonds and Loans for North American Corporate Issuers: 1983-2003
How To Measure Libd On Commercial Loans
C APITAL M ANAGEMENT Measuring LGD on Commercial Loans: by Michel Araten, Michael Jacobs Jr., and Peeyush Varshney This article presents findings of and highlights issues associated with an etensive internal
Internal Ratings-based Approach to Credit Risk: Purchased Receivables
Guidance Note AGN 113.4 Internal Ratings-based Approach to Credit Risk: Purchased Receivables 1. This Guidance Note sets out the method of calculating the unexpected loss (UL) regulatory capital requirement
Lecture 2 Bond pricing. Hedging the interest rate risk
Lecture 2 Bond pricing. Hedging the interest rate risk IMQF, Spring Semester 2011/2012 Module: Derivatives and Fixed Income Securities Course: Fixed Income Securities Lecturer: Miloš Bo ović Lecture outline
What Do We Know About Loss Given Default?
Financial Institutions Center What Do We Know About Loss Given Default? by Til Schuermann 04-01 The Wharton Financial Institutions Center The Wharton Financial Institutions Center provides a multi-disciplinary
Financial-Institutions Management
Solutions 3 Chapter 11: Credit Risk Loan Pricing and Terms 9. County Bank offers one-year loans with a stated rate of 9 percent but requires a compensating balance of 10 percent. What is the true cost
Mortgage Backed Securities
Wisconsin School of Business December 7, 2008 Outline We will talk about traditional MBS s which include Mortgage pass through securities Collateralized mortgage obligations (CMO s) Stripped MBS s These
EBA discussion paper and call for evidence on SMEs and SME supporting factor (EBA in EBA/DP/2015/02)
POSITION PAPER Our reference: 2015/08/008 Your reference: EBA/DP/2015/02 1 (9) 30/09/2015 European Banking Association EBA discussion paper and call for evidence on SMEs and SME supporting factor (EBA
CONSULTATION PAPER P016-2006 October 2006. Proposed Regulatory Framework on Mortgage Insurance Business
CONSULTATION PAPER P016-2006 October 2006 Proposed Regulatory Framework on Mortgage Insurance Business PREFACE 1 Mortgage insurance protects residential mortgage lenders against losses on mortgage loans
Credit Risk Stress Testing
1 Credit Risk Stress Testing Stress Testing Features of Risk Evaluator 1. 1. Introduction Risk Evaluator is a financial tool intended for evaluating market and credit risk of single positions or of large
RISK MANAGEMENT OF CREDIT ASSETS: THE NEXT GREAT FINANCIAL CHALLENGE IN THE NEW MILLENIUM
RISK MANAGEMENT OF CREDIT ASSETS: THE NEXT GREAT FINANCIAL CHALLENGE IN THE NEW MILLENIUM Dr. Edward I. Altman Max L. Heine Professor of Finance NYU Stern School of Business Managing Credit Risk: The Challenge
Aggregate Risk and the Choice Between Cash and Lines of Credit
Aggregate Risk and the Choice Between Cash and Lines of Credit Viral Acharya NYU Stern School of Business, CEPR, NBER Heitor Almeida University of Illinois at Urbana Champaign, NBER Murillo Campello Cornell
Probability Models of Credit Risk
Probability Models of Credit Risk In discussing financial risk, it is useful to distinguish between market risk and credit risk. Market risk refers to the possibility of losses due to changes in the prices
Contents. Preface. Introduction The Basics of Credit Derivatives 1. Chapter 1 The Market for Credit Derivatives 3
Preface xii Introduction The Basics of Credit Derivatives 1 What is Credit Risk? 1 What are Credit Derivatives? 1 Why Credit Derivatives? 2 Chapter 1 The Market for Credit Derivatives 3 Credit Events That
for mortgages DATE: 2014-01-15
Risk weights for mortgages Estimation of prudent risk weights for mortgages DATE: 2014-01-15 2 Finanstilsynet Contents 1 Introduction 4 1.1 Preface 4 1.2 Review findings 4 2 Measures 4 2.1 PD calibration
Beyond preferred stock valuation of complex equity and hybrid instruments
Beyond preferred stock valuation of complex equity and hybrid instruments ASA Advanced Business Valuation Conference October 2015 Amanda A. Miller, Ph.D. 4 June 2015 Amanda A. Miller, Ph.D. (amanda.miller@ey.com)
Interest Rates and Bond Valuation
Interest Rates and Bond Valuation Chapter 6 Key Concepts and Skills Know the important bond features and bond types Understand bond values and why they fluctuate Understand bond ratings and what they mean
Regulatory and Economic Capital
Regulatory and Economic Capital Measurement and Management Swati Agiwal November 18, 2011 What is Economic Capital? Capital available to the bank to absorb losses to stay solvent Probability Unexpected
Understanding the Recovery Rates on Defaulted Securities 1
Understanding the Recovery Rates on Defaulted Securities 1 Viral V. Acharya Department of Finance London Business School Sreedhar T. Bharath Department of Finance University of Michigan Business School
IASB/FASB Meeting Week beginning 11 April 2011. Top down approaches to discount rates
IASB/FASB Meeting Week beginning 11 April 2011 IASB Agenda reference 5A FASB Agenda Staff Paper reference 63A Contacts Matthias Zeitler mzeitler@iasb.org +44 (0)20 7246 6453 Shayne Kuhaneck skuhaneck@fasb.org
Leveraged Bank Loans. Prudential Investment Management-Fixed Income. Leveraged Loans: Capturing Investor Attention August 2005
Prudential Investment Management-Fixed Income Leveraged Loans: Capturing Investor Attention August 2005 Ross Smead Head of US Bank Loan Team, Prudential Investment Management-Fixed Income Success in today
Stress Testing Residential Mortgage Portfolios
Stress Testing Residential Mortgage Portfolios Federal Reserve Bank of Boston Stress Test Modeling Symposium September 13-14, 2012 Kerry D. Vandell Dean s Professor of Finance Center for Real Estate University
1) What kind of risk on settlements is covered by 'Herstatt Risk' for which BCBS was formed?
1) What kind of risk on settlements is covered by 'Herstatt Risk' for which BCBS was formed? a) Exchange rate risk b) Time difference risk c) Interest rate risk d) None 2) Which of the following is not
CITIGROUP INC. BASEL II.5 MARKET RISK DISCLOSURES AS OF AND FOR THE PERIOD ENDED MARCH 31, 2013
CITIGROUP INC. BASEL II.5 MARKET RISK DISCLOSURES AS OF AND FOR THE PERIOD ENDED MARCH 31, 2013 DATED AS OF MAY 15, 2013 Table of Contents Qualitative Disclosures Basis of Preparation and Review... 3 Risk
Bankruptcy and the Business Cycle: Are SMEs Less Sensitive to Systematic Risk?
Bankruptcy and the Business Cycle: Are SMEs Less Sensitive to Systematic Risk? Tor Jacobson Jesper Lindé Kasper Roszbach Conference on Small Business Finance World Bank, 6 May 2008 Tor Jacobson, Jesper
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
ECON 4110: Sample Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Economists define risk as A) the difference between the return on common
The Empirical Approach to Interest Rate and Credit Risk in a Fixed Income Portfolio
www.empirical.net Seattle Portland Eugene Tacoma Anchorage March 27, 2013 The Empirical Approach to Interest Rate and Credit Risk in a Fixed Income Portfolio By Erik Lehr In recent weeks, market news about
Commercial paper collateralized by a pool of loans, leases, receivables, or structured credit products. Asset-backed commercial paper (ABCP)
GLOSSARY Asset-backed commercial paper (ABCP) Asset-backed security (ABS) Asset-backed securities index (ABX) Basel II Call (put) option Carry trade Collateralized debt obligation (CDO) Collateralized
Investment insight. Fixed income the what, when, where, why and how TABLE 1: DIFFERENT TYPES OF FIXED INCOME SECURITIES. What is fixed income?
Fixed income investments make up a large proportion of the investment universe and can form a significant part of a diversified portfolio but investors are often much less familiar with how fixed income
For the purposes of this Annex the following definitions shall apply:
XIV. COUNTERPARTY CREDIT RISK 1. Definitions ANNEX III: THE TREATMENT OF COUNTERPARTY CREDIT RISK OF DERIVATIVE INSTRUMENTS, REPURCHASE TRANSACTIONS, SECURITIES OR COMMODITIES LENDING OR BORROWING TRANSACTIONS,
Financial-Institutions Management. Solutions 6
Solutions 6 Chapter 25: Loan Sales 2. A bank has made a three-year $10 million loan that pays annual interest of 8 percent. The principal is due at the end of the third year. a. The bank is willing to
Market-Consistent Valuation of the Sponsor Covenant and its use in Risk-Based Capital Assessment. Craig Turnbull FIA
Market-Consistent Valuation of the Sponsor Covenant and its use in Risk-Based Capital Assessment Craig Turnbull FIA Background and Research Objectives 2 Background: DB Pensions and Risk + Aggregate deficits
Stress Testing Trading Desks
Stress Testing Trading Desks Michael Sullivan Office of the Comptroller of the Currency Paper presented at the Expert Forum on Advanced Techniques on Stress Testing: Applications for Supervisors Hosted
STRUCTURED FINANCE RATING CRITERIA 2015
STRUCTURED FINANCE RATING CRITERIA 2015 1. Introduction 3 1.1 Credit quality of the collateral 3 1.2 The structure designed 3 1.3 Qualitative risks on the Securitization Fund 4 1.4 Sensitivity 4 1.5 Definition
1. The Program serves as an investment function to enhance portfolio return without interfering with overall portfolio strategy.
IX. Securities Lending Policy The Illinois State Board of Investment ( ISBI or the Board ) has established the following Securities Lending Policy (the Policy ) to set forth objectives and procedures for
Defaulted Bank Loan Recoveries
November 1996 Summary Contact Phone New York Lea V. Carty (212) 553-1653 Dana Lieberman In 1995, Moody s began assigning credit ratings to bank loans in the belief that access to analysis and information
Basel Committee on Banking Supervision. Basel III counterparty credit risk - Frequently asked questions
Basel Committee on Banking Supervision Basel III counterparty credit risk - Frequently asked questions November 2011 Copies of publications are available from: Bank for International Settlements Communications
1. State and explain two reasons why short-maturity loans are safer (meaning lower credit risk) to the lender than long-maturity loans (10 points).
Boston College, MF 820 Professor Strahan Midterm Exam, Fall 2010 1. State and explain two reasons why short-maturity loans are safer (meaning lower credit risk) to the lender than long-maturity loans (10
Advanced Asset Securitisation Programme Course Duration - 2 Days
Neueda customise all courses to ensure that the content matches your specific requirements. Please feel free to contact training@neueda.com to discuss options. Programme objectives In recent years, before
Glossary of Common Derivatives Terms
DRAFT: 10/03/07 Glossary of Common Derivatives Terms American Depository Receipts (ADRs). ADRs are receipts issued by a U.S. bank or trust company evidencing its ownership of underlying foreign securities.
Implications of Merton models for corporate bond investors
Implications of Merton models for corporate bond investors Wesley Phoa Capital Strategy Research 11100 Santa Monica Boulevard Los Angeles, CA 90025 Introduction and history In the past couple of years,
Risk Management at a Leading Canadian Bank An Actuarial Science Graduate's View
at a Leading Canadian Bank An Actuarial Science Graduate's View Yu Zhou Quantitative Analytics, Group Risk Management TD Bank Financial Group at a Leading Canadian Bank: An Actuarial Science Graduate s
Credit ratings are vital inputs for structured
DEFAULT RATES OF Canadian Corporate BOND ISSUERS Fourteen years of empirical data help draw the lines between debt ratings and defaults. BY DAVID T. HAMILTON AND SHARON OU Credit ratings are vital inputs
Opportunities and risks in credit. Michael Korber Head of Credit
Opportunities and risks in credit Michael Korber Head of Credit August 2009 Overview Fixed income assets, characteristics and risks Where the current opportunity is in fixed income markets How to access
Empirical Analysis of the Average Asset Correlation for Real Estate Investment Trusts
FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES Empirical Analysis of the Average Asset Correlation for Real Estate Investment Trusts Jose A. Lopez Federal Reserve Bank of San Francisco October
Understanding Fixed Income
Understanding Fixed Income 2014 AMP Capital Investors Limited ABN 59 001 777 591 AFSL 232497 Understanding Fixed Income About fixed income at AMP Capital Our global presence helps us deliver outstanding
Debt Instruments Set 10
Debt Instruments Set 10 Backus/December 1, 1998 Credit Risk on Corporate Debt 0. Overview Global Debt Markets Yield Spreads Default and Recovery Rates Valuation Bond Ratings Registration Basics Credit
Securitized-Product Investment: Risk Management Perspectives *
- March 2008 Paper Series of Risk Management in Financial Institutions Securitized-Product Investment: Risk Management Perspectives * Financial Systems and Bank Examination Department Bank of Japan Please
Managing the Investment Portfolio
Managing the Investment Portfolio GSBC Executive Development Institute April 26, 2015 Portfolio Purpose & Objectives Tale of Two Balance Sheets o Components of Core Balance Sheet Originated loans Retail
Credit Implied Volatility
Credit Implied Volatility Bryan Kelly* Gerardo Manzo Diogo Palhares University of Chicago & NBER University of Chicago AQR Capital Management January 2015 PRELIMINARY AND INCOMPLETE Abstract We introduce
loan pricing & profitability management solution How Does the Math Work? Carl Ryden, CEO precisionlender.com
loan pricing & profitability management solution How Does the Math Work? Carl Ryden, CEO precisionlender.com Copyright 2015 Lender Performance Group, LLC. All rights reserved. Overview How do we calculate
TITLE 5 BANKING DELAWARE ADMINISTRATIVE CODE
TITLE 5 BANKING 900 Regulations Governing Business of Banks and Trust Companies 1 905 Loan Limitations: Credit Exposure to Derivative Transactions 1.0 Purpose This regulation sets forth the rules for calculating
An Alternative Way to Diversify an Income Strategy
Senior Secured Loans An Alternative Way to Diversify an Income Strategy Alternative Thinking Series There is no shortage of uncertainty and risk facing today s investor. From high unemployment and depressed
CONTENTS. List of Figures List of Tables. List of Abbreviations
List of Figures List of Tables Preface List of Abbreviations xiv xvi xviii xx 1 Introduction to Value at Risk (VaR) 1 1.1 Economics underlying VaR measurement 2 1.1.1 What is VaR? 4 1.1.2 Calculating VaR
COMMUNITY FOUNDATION OF GREATER MEMPHIS, INC. INVESTMENT GUIDELINES FOR MONEY MARKET POOL
INVESTMENT GUIDELINES FOR MONEY MARKET POOL discretionary Money Market Pool is expected to pursue their stated investment strategy and follow the investment guidelines and objectives set forth herein.
Introduction & Overview 2. 1. The Importance of Recovery Rates 3. 2. Empirical Studies 4
Recovery Rates Introduction & Overview 2 1. The Importance of Recovery Rates 3 2. Empirical Studies 4 Almost everything you wanted to know about recoveries on defaulted bonds 4 Managing loan loss on defaulted
Seeking Alternatives. Senior loans an innovative asset class
Trends 09 10.11 Seeking Alternatives Senior loans an innovative asset class Dirk Wieringa, Alternative Investments Advisory Senior loans are an innovative asset class that provide a hedge against rising
Topics in Chapter. Key features of bonds Bond valuation Measuring yield Assessing risk
Bond Valuation 1 Topics in Chapter Key features of bonds Bond valuation Measuring yield Assessing risk 2 Determinants of Intrinsic Value: The Cost of Debt Net operating profit after taxes Free cash flow
Asymmetry and the Cost of Capital
Asymmetry and the Cost of Capital Javier García Sánchez, IAE Business School Lorenzo Preve, IAE Business School Virginia Sarria Allende, IAE Business School Abstract The expected cost of capital is a crucial
Consultation Paper: Review of bank capital adequacy requirements for housing loans (stage one).
Consultation Paper: Review of bank capital adequacy requirements for housing loans (stage one). The Reserve Bank invites submissions on this Consultation Paper by 16 April 2013. Submissions and enquiries
SEMINAR ON CREDIT RISK MANAGEMENT AND SME BUSINESS RENATO MAINO. Turin, June 12, 2003. Agenda
SEMINAR ON CREDIT RISK MANAGEMENT AND SME BUSINESS RENATO MAINO Head of Risk assessment and management Turin, June 12, 2003 2 Agenda Italian market: the peculiarity of Italian SMEs in rating models estimation
How To Value Bonds
Chapter 6 Interest Rates And Bond Valuation Learning Goals 1. Describe interest rate fundamentals, the term structure of interest rates, and risk premiums. 2. Review the legal aspects of bond financing
Disclosure 17 OffV (Credit Risk Mitigation Techniques)
Disclosure 17 OffV (Credit Risk Mitigation Techniques) The Austrian Financial Market Authority (FMA) and the Oesterreichsiche Nationalbank (OeNB) have assessed UniCredit Bank Austria AG for the use of
An Alternative to Fixed Rate Bonds
An Alternative to Fixed Rate Bonds Voya Senior Loans Suite offered by Aston Hill Financial Seeks to pay high income in various rate environments One of the world s largest dedicated senior loan teams Five
t = 1 2 3 1. Calculate the implied interest rates and graph the term structure of interest rates. t = 1 2 3 X t = 100 100 100 t = 1 2 3
MØA 155 PROBLEM SET: Summarizing Exercise 1. Present Value [3] You are given the following prices P t today for receiving risk free payments t periods from now. t = 1 2 3 P t = 0.95 0.9 0.85 1. Calculate
Investing in Corporate Credit Using Quantitative Tools
14 SEPTEMBER 2010 MODELING METHODOLOGY FROM MOODY S KMV Investing in Corporate Credit Using Quantitative Tools Authors Zan Li Jing Zhang Editor Christopher Crossen Contact Us Americas +1-212-553-5160 clientservices@moodys.com
How To Understand The Concept Of Securitization
Asset Securitization 1 No securitization Mortgage borrowers Bank Investors 2 No securitization Consider a borrower that needs a bank loan to buy a house The bank lends the money in exchange of monthly
Statistics for Retail Finance. Chapter 8: Regulation and Capital Requirements
Statistics for Retail Finance 1 Overview > We now consider regulatory requirements for managing risk on a portfolio of consumer loans. Regulators have two key duties: 1. Protect consumers in the financial
The Tangent or Efficient Portfolio
The Tangent or Efficient Portfolio 1 2 Identifying the Tangent Portfolio Sharpe Ratio: Measures the ratio of reward-to-volatility provided by a portfolio Sharpe Ratio Portfolio Excess Return E[ RP ] r
Development of mortgage lending in Russia
Development of mortgage lending in Russia Development of Russian mortgage market: 2007-2012 Mortgage origination, bln. (RUB/$) Mortgage share of residential market turnover 1000 900 800 700 600 500 400
9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle
9. Short-Term Liquidity Analysis. Operating Cash Conversion Cycle 9.1 Current Assets and 9.1.1 Cash A firm should maintain as little cash as possible, because cash is a nonproductive asset. It earns no
Market Risk Capital Disclosures Report. For the Quarter Ended March 31, 2013
MARKET RISK CAPITAL DISCLOSURES REPORT For the quarter ended March 31, 2013 Table of Contents Section Page 1 Morgan Stanley... 1 2 Risk-based Capital Guidelines: Market Risk... 1 3 Market Risk... 1 3.1
Enterprise Risk Management
Enterprise Risk Management Enterprise Risk Management Understand and manage your enterprise risk to strike the optimal dynamic balance between minimizing exposures and maximizing opportunities. Today s
Asset Securitisation in Australia 1
Asset Securitisation in Australia 1 1 8 6 4 2 Graph 1 Australian Securitisation Vehicles Selected assets and liabilities $b Assets Liabilities $b Non-residential mortgages Other loans 1995 1998 21 24 Sources: