This document discusses modeling credit risk for a homogeneous debt portfolio using a Gaussian copula model. It describes using correlated standard normal random variables to model default dependency between borrowers, with the correlation coefficient representing the copula correlation. Equations are provided for calculating portfolio credit measures like worst case loss while accounting for diversification based on the number of borrowers and level of default dependency. Formulas are also given for determining the copula correlation coefficient for different exposure types.
This document discusses credit risk modeling for a homogeneous debt portfolio. It covers modeling approaches for independent, finite, and infinite homogeneous portfolios using concepts like the binomial distribution, Gaussian copula, and correlation coefficient (CCC). Key credit risk factors like probability of default, loss given default, exposure at default, and number of borrowers are accounted for in the portfolio modeling. Diversification effects from varying the number of borrowers and their default dependency are also examined.
This document provides an overview of modeling credit risk for homogeneous debt portfolios using a Gaussian copula approach. It discusses key concepts like:
1) Modeling default dependence between borrowers in a portfolio using correlated standard normal random variables and a copula correlation coefficient (CCC).
2) Calculating portfolio credit measures like the worst case default rate (WCDR) and worst case loss (WCL) for independent and finite homogeneous portfolios.
3) Specifying CCC values for different exposure types according to the Basel III framework.
4) Using Monte Carlo simulation to model default rates across a finite portfolio of borrowers with the same probability of default (PD) and CCC.
This document discusses heterogeneous debt portfolios and methods to calculate extreme loss for credit risk (XCL). It covers Moody's binominal expansion technique using diversity scores, structured portfolios using Monte Carlo simulation accounting for default dependency, and total portfolios with lower and upper XCL bounds. Historical simulation is also described using long-term default and loss data to estimate XCL for corporate bond portfolios.
Chapter 18 internal ratings based approachQuan Risk
This document summarizes Chapter 18 of the textbook "Managing Credit Risk Under The Basel III Framework, 3rd ed". It discusses the internal ratings-based approach (IRB) for calculating capital requirements under Basel III. The IRB approach allows banks to use their own estimates of probability of default (PD), loss given default (LGD), and exposure at default (EAD) in the capital calculation. The document outlines the IRB formulas for different exposure types including retail, corporate, and institutional exposures. It also discusses credit risk mitigation techniques within the IRB approach.
This document discusses heterogeneous debt portfolios and credit risk measurement. It covers Moody's binominal expansion technique for portfolios with homogeneous debt characteristics. It also discusses structured and total heterogeneous portfolios that have differing debt exposures, loss given defaults, and probabilities of default. Monte Carlo simulation is presented as a primary approach for credit risk measurement of heterogeneous portfolios. Historical simulation using long-run default and loss data is also summarized.
This document provides an overview of credit scoring techniques including:
1) Using historical lending records to identify explanatory variables that can predict credit quality and developing quantitative models to assess potential borrowers.
2) Techniques like cluster analysis, linear discriminant analysis, and probit regression that are used to develop scoring formulas and assign probabilities of default.
3) The process of credit scoring including identifying explanatory variables, developing scoring formulas, setting cutoff scores, and converting scores to probability of default predictions.
This document provides an outline and overview of credit risk controls under the Basel III framework. It discusses controls for both single debts and debt portfolios. For single debts, it describes controls like bilateral netting, principal amortization, collateral, margining, credit guarantees, credit default swaps, downgrade triggers, and call provisions. For debt portfolios, it discusses reducing concentration and dependency through diversification, as well as credit securitization and credit limits. The appendix provides mathematical formulas for concepts like instant LGD, hazard rate, and average LGD.
A large deductible captive, also known as a deductible reimbursement policy (DRP), allows a company to self-insure its losses within a large deductible on a third-party insurance policy. The captive issues a policy to the insured to reimburse losses within the deductible. This structure reduces insurance expenses, smooths premiums, and allows the insured more control over claims while generating underwriting profits and investment returns for the captive. The captive is capitalized through premiums set based on historical deductible losses and requires at least 20% of annual premium or the solvency standard as capital.
This document discusses credit risk modeling for a homogeneous debt portfolio. It covers modeling approaches for independent, finite, and infinite homogeneous portfolios using concepts like the binomial distribution, Gaussian copula, and correlation coefficient (CCC). Key credit risk factors like probability of default, loss given default, exposure at default, and number of borrowers are accounted for in the portfolio modeling. Diversification effects from varying the number of borrowers and their default dependency are also examined.
This document provides an overview of modeling credit risk for homogeneous debt portfolios using a Gaussian copula approach. It discusses key concepts like:
1) Modeling default dependence between borrowers in a portfolio using correlated standard normal random variables and a copula correlation coefficient (CCC).
2) Calculating portfolio credit measures like the worst case default rate (WCDR) and worst case loss (WCL) for independent and finite homogeneous portfolios.
3) Specifying CCC values for different exposure types according to the Basel III framework.
4) Using Monte Carlo simulation to model default rates across a finite portfolio of borrowers with the same probability of default (PD) and CCC.
This document discusses heterogeneous debt portfolios and methods to calculate extreme loss for credit risk (XCL). It covers Moody's binominal expansion technique using diversity scores, structured portfolios using Monte Carlo simulation accounting for default dependency, and total portfolios with lower and upper XCL bounds. Historical simulation is also described using long-term default and loss data to estimate XCL for corporate bond portfolios.
Chapter 18 internal ratings based approachQuan Risk
This document summarizes Chapter 18 of the textbook "Managing Credit Risk Under The Basel III Framework, 3rd ed". It discusses the internal ratings-based approach (IRB) for calculating capital requirements under Basel III. The IRB approach allows banks to use their own estimates of probability of default (PD), loss given default (LGD), and exposure at default (EAD) in the capital calculation. The document outlines the IRB formulas for different exposure types including retail, corporate, and institutional exposures. It also discusses credit risk mitigation techniques within the IRB approach.
This document discusses heterogeneous debt portfolios and credit risk measurement. It covers Moody's binominal expansion technique for portfolios with homogeneous debt characteristics. It also discusses structured and total heterogeneous portfolios that have differing debt exposures, loss given defaults, and probabilities of default. Monte Carlo simulation is presented as a primary approach for credit risk measurement of heterogeneous portfolios. Historical simulation using long-run default and loss data is also summarized.
This document provides an overview of credit scoring techniques including:
1) Using historical lending records to identify explanatory variables that can predict credit quality and developing quantitative models to assess potential borrowers.
2) Techniques like cluster analysis, linear discriminant analysis, and probit regression that are used to develop scoring formulas and assign probabilities of default.
3) The process of credit scoring including identifying explanatory variables, developing scoring formulas, setting cutoff scores, and converting scores to probability of default predictions.
This document provides an outline and overview of credit risk controls under the Basel III framework. It discusses controls for both single debts and debt portfolios. For single debts, it describes controls like bilateral netting, principal amortization, collateral, margining, credit guarantees, credit default swaps, downgrade triggers, and call provisions. For debt portfolios, it discusses reducing concentration and dependency through diversification, as well as credit securitization and credit limits. The appendix provides mathematical formulas for concepts like instant LGD, hazard rate, and average LGD.
A large deductible captive, also known as a deductible reimbursement policy (DRP), allows a company to self-insure its losses within a large deductible on a third-party insurance policy. The captive issues a policy to the insured to reimburse losses within the deductible. This structure reduces insurance expenses, smooths premiums, and allows the insured more control over claims while generating underwriting profits and investment returns for the captive. The captive is capitalized through premiums set based on historical deductible losses and requires at least 20% of annual premium or the solvency standard as capital.
This document provides an overview of collateralized debt obligations (CDOs) and credit default swaps (CDS) and their role in the 2007-2009 subprime crisis and Ireland. It defines CDOs as structured products where a portfolio of securities is transferred to a special purpose vehicle that issues tranches of notes with different seniority. CDS are contracts that allow investors to trade credit risk, where a protection buyer pays a premium to a protection seller in exchange for a payment if a credit event occurs to a reference entity. The document suggests CDOs and CDS contributed to financial fragility in Ireland during this time period by disrupting normal market functioning and generating assets with varying sensitivities to default correlation.
This document provides an outline and content for Chapter 14 on Collateralized Debt Obligations (CDOs). It discusses the characteristics of traditional CDOs, synthetic CDOs, and market value CDOs. It covers CDO tranching, cash waterfalls, and how CDOs redistribute credit risk from the reference portfolio to the tranches. The document also discusses CDO rating methodologies including attachment points, detachment points, and tests used by agencies to determine ratings.
Assessment of the acceptability of personal guarantees and life assurance pol...Alexander Decker
This document summarizes a research study that assessed the acceptability of personal guarantees and life insurance policies as collateral for loans in Ghana. The study found that while most banks accept personal guarantees, their usage is limited. Non-bank financial institutions had a higher rate of using personal guarantees. Most banks do not accept life insurance policies as collateral. The study aimed to establish the extent guarantees and life insurance are accepted as collateral in Ghana and examine qualification requirements if they were to be accepted. Researchers surveyed credit officers at banks and non-bank financial institutions about their collateral policies and practices regarding guarantees and life insurance.
Learning credit networks with applications in financial industry - Sumit SourabhPyData
PyData Amsterdam 2018
The purpose of this talk is to illustrate the importance of network-based models in financial industry since the 2007-08 crisis. I will present our novel method to learn a (Bayesian) network using default dependence of financial institutions and show how financial distress can propagate via such a network. I will share some examples where we extensively use NetworkX and bnlearn packages.
Redington is an investment consulting firm that advises pension funds and insurance companies. It has grown significantly in recent years and now advises on over £230 billion in assets. Redington combines traditional actuarial approaches with investment banking expertise. It focuses on achieving clients' financial goals with minimum risk through a disciplined 7-step framework. Redington aims to provide capital markets expertise, access to networks of experts, and award-winning analytics to give clients a competitive advantage.
This document discusses whether credit default swaps (CDS) should be introduced in India. It begins by explaining what CDS are and how they work. It then discusses the growth of the global CDS market and how CDS are used for hedging credit risk and speculation. It notes that India's corporate debt market is much smaller than other countries. The document evaluates the current state of CDS regulation in India and concludes that CDS should be introduced in India to help develop its debt markets, allow for more efficient pricing of credit risk, and enable broader participation in the markets. It recommends starting with exchange-traded single-name CDS of 5-year maturity that are cash settled.
Learn why Commercial Real Estate Debt is the perfect partner for Peer-to-Peer Lending. Placing the words “commercial property” in front of p2p lending is not something you should fret about. In fact, greater capital protection from the property and longer tenancies make Commercial Property P2P Lending one of the most secure forms of p2p lending, plus it offers favourable returns of 5-12% pa (after fees, but before bad debts and taxes).
The document discusses Four Springs Capital's investment strategy in net-leased real estate and energy assets. It summarizes FSC's capabilities in structuring special purpose entities like LLCs and DSTs for 1031 exchanges and real estate ownership. The management team is experienced in private equity, asset management, and energy investment banking. FSC believes energy prices have dropped to attractive entry levels for producing mineral interests, royalties, and volumetric production payments with stable cash flows.
- Ameriprise Financial's investment portfolio experienced increased unrealized losses during the third quarter of 2008 due to widespread spread widening across fixed income markets.
- The portfolio emphasizes high quality, diversified holdings including investment grade corporate bonds from industries like utilities and telecommunications as well as agency residential mortgage-backed securities.
- Total unrealized losses increased by $602 million in the third quarter, with the largest losses occurring in investment grade corporate bonds and state and municipal bonds.
The document discusses various topics related to insurance markets and management, including:
1. Risk managers are taking a long-term view of the financial crisis and are focusing on strengthening loss prevention over increasing insurance.
2. Insurers are asked to improve claims settlement efficiency while also innovating products and coverage.
3. Knowledge of risks and adequate insurance coverage varies across industries and countries.
Steven Glaze Kansas City one of the bests building contractor. He focuses on amending an existing structure rather than building latest one. He mainly improves design or performance and increases the home’s value and makes it more adorable to buyers. Of his main functions architectonics, design, and arrangement are main.
This document provides an overview of credit default swaps (CDS) and analyzes them in three sentences or less:
The document outlines different types of CDS including single name, binary, basket, and portfolio CDS. It discusses the cash flows, hedging applications, and credit risks associated with each type. The document also analyzes how factors like principal, probability of default, and protection period impact the expected protection of CDS.
This document is a presentation on the internal ratings-based (IRB) approach for calculating capital requirements under Basel III. It includes outlines, definitions, formulas and examples for calculating key risk metrics like exposure at default, loss given default, probability of default, expected loss, unexpected loss and capital requirements under the retail, advanced, and foundation IRB approaches. Formulas vary depending on the type of exposure, such as residential mortgages, corporate exposures, or financial institutions. The document also discusses credit risk mitigation techniques.
This document provides an introduction to credit risk factors and measures. It discusses key concepts like exposure at default, loss given default, probability of default, expected loss, and one-year expected loss. It also provides an example of calculating these measures for a simple loan with a principal of $10,000, loss given default of 90%, probability of default of 3%, and residual maturity of 3 years. The expected loss is calculated as $786 and one-year expected loss is $270 for this loan.
This document discusses credit indices and CDS index contracts. It begins with defining a credit index as the average CDS spreads of a group of underlying single name CDS contracts. It then outlines the major credit indices published by Markit, including the CDX and iTraxx families. The document also discusses CDS index contracts, noting they are a portfolio of underlying single name CDSs. It explains features like upfront payments, premiums, cash settlement, and the valuation and credit risks associated with long and short positions in a CDS index contract.
This document provides an outline for Chapter 14 of a textbook on managing credit risk under Basel III. It discusses collateralized debt obligations (CDOs), including their characteristics, rating, assessment, design and appendices. The chapter covers topics such as cash flow and synthetic CDOs, tranching, and the functional purposes and rating of CDOs.
This document provides an overview of corporate credit analysis based on Chapter 8 of the textbook "Managing Credit Risk Under The Basel III Framework, 3rd ed". It discusses traditional corporate credit analysis methods, Merton's corporate default model, financial ratios analysis, and Altman's Z-score models. The key points covered include how to calculate historical volatility, identify risk-free rates, derive asset volatility from equity volatility, and determine probability of default using Merton's model. Financial statement items and types of financial ratios for analysis are also outlined.
This document provides an overview of Chapter 14 from the textbook "Managing Credit Risk Under The Basel III Framework, 3rd ed" on collateralized debt obligations (CDOs). It discusses how CDOs redistribute credit risk from illiquid debt markets to create investment opportunities with different risk-return profiles. CDOs issue multiple tranches that allocate cash flows and losses in order of seniority, with senior tranches receiving priority over mezzanine and equity tranches. CDOs can be structured on actual debt portfolios or through synthetic transactions using credit default swaps.
This document discusses key concepts related to the IFRS 9 accounting framework. It covers book value, which is the value calculated according to IFRS 9 rules. For loans, book value equals the outstanding principal. It also discusses credit provision and interest income calculations. Credit provision depends on the credit risk and can include general or specific provisions based on expected losses. Interest income factors in any specific credit provisions.
Chapter 18 internal ratings based approachQuan Risk
This document provides an overview of the internal ratings-based (IRB) approach for calculating capital requirements for credit risk under Basel III. It covers the theory behind the IRB approach and outlines the specific formulas used for different types of exposures, including retail, institutional, corporate and sovereign exposures. The document also discusses topics like credit risk mitigation techniques, internal ratings systems, probability of default estimates, and implementation of the IRB approach.
This document summarizes key aspects of modeling heterogeneous debt portfolios. It discusses Moody's binominal expansion technique for modeling portfolios with homogeneous exposures and probabilities of default. For heterogeneous portfolios, it describes using Monte Carlo simulation to estimate a range of potential worst case losses. Industry practices for modeling various types of heterogeneous portfolios are also outlined.
This document discusses key aspects of the IFRS 9 accounting framework for financial instruments, including:
1) It distinguishes between price, value, market value, model value, and book value as ways of determining the worth of financial assets.
2) It explains how book value, credit provisions, and interest income are calculated under IFRS 9 based on factors like credit risk and expected losses.
3) It provides examples and outlines how the principles of IFRS 9 can be extended to different types of financial instruments.
This document provides an overview of collateralized debt obligations (CDOs) and credit default swaps (CDS) and their role in the 2007-2009 subprime crisis and Ireland. It defines CDOs as structured products where a portfolio of securities is transferred to a special purpose vehicle that issues tranches of notes with different seniority. CDS are contracts that allow investors to trade credit risk, where a protection buyer pays a premium to a protection seller in exchange for a payment if a credit event occurs to a reference entity. The document suggests CDOs and CDS contributed to financial fragility in Ireland during this time period by disrupting normal market functioning and generating assets with varying sensitivities to default correlation.
This document provides an outline and content for Chapter 14 on Collateralized Debt Obligations (CDOs). It discusses the characteristics of traditional CDOs, synthetic CDOs, and market value CDOs. It covers CDO tranching, cash waterfalls, and how CDOs redistribute credit risk from the reference portfolio to the tranches. The document also discusses CDO rating methodologies including attachment points, detachment points, and tests used by agencies to determine ratings.
Assessment of the acceptability of personal guarantees and life assurance pol...Alexander Decker
This document summarizes a research study that assessed the acceptability of personal guarantees and life insurance policies as collateral for loans in Ghana. The study found that while most banks accept personal guarantees, their usage is limited. Non-bank financial institutions had a higher rate of using personal guarantees. Most banks do not accept life insurance policies as collateral. The study aimed to establish the extent guarantees and life insurance are accepted as collateral in Ghana and examine qualification requirements if they were to be accepted. Researchers surveyed credit officers at banks and non-bank financial institutions about their collateral policies and practices regarding guarantees and life insurance.
Learning credit networks with applications in financial industry - Sumit SourabhPyData
PyData Amsterdam 2018
The purpose of this talk is to illustrate the importance of network-based models in financial industry since the 2007-08 crisis. I will present our novel method to learn a (Bayesian) network using default dependence of financial institutions and show how financial distress can propagate via such a network. I will share some examples where we extensively use NetworkX and bnlearn packages.
Redington is an investment consulting firm that advises pension funds and insurance companies. It has grown significantly in recent years and now advises on over £230 billion in assets. Redington combines traditional actuarial approaches with investment banking expertise. It focuses on achieving clients' financial goals with minimum risk through a disciplined 7-step framework. Redington aims to provide capital markets expertise, access to networks of experts, and award-winning analytics to give clients a competitive advantage.
This document discusses whether credit default swaps (CDS) should be introduced in India. It begins by explaining what CDS are and how they work. It then discusses the growth of the global CDS market and how CDS are used for hedging credit risk and speculation. It notes that India's corporate debt market is much smaller than other countries. The document evaluates the current state of CDS regulation in India and concludes that CDS should be introduced in India to help develop its debt markets, allow for more efficient pricing of credit risk, and enable broader participation in the markets. It recommends starting with exchange-traded single-name CDS of 5-year maturity that are cash settled.
Learn why Commercial Real Estate Debt is the perfect partner for Peer-to-Peer Lending. Placing the words “commercial property” in front of p2p lending is not something you should fret about. In fact, greater capital protection from the property and longer tenancies make Commercial Property P2P Lending one of the most secure forms of p2p lending, plus it offers favourable returns of 5-12% pa (after fees, but before bad debts and taxes).
The document discusses Four Springs Capital's investment strategy in net-leased real estate and energy assets. It summarizes FSC's capabilities in structuring special purpose entities like LLCs and DSTs for 1031 exchanges and real estate ownership. The management team is experienced in private equity, asset management, and energy investment banking. FSC believes energy prices have dropped to attractive entry levels for producing mineral interests, royalties, and volumetric production payments with stable cash flows.
- Ameriprise Financial's investment portfolio experienced increased unrealized losses during the third quarter of 2008 due to widespread spread widening across fixed income markets.
- The portfolio emphasizes high quality, diversified holdings including investment grade corporate bonds from industries like utilities and telecommunications as well as agency residential mortgage-backed securities.
- Total unrealized losses increased by $602 million in the third quarter, with the largest losses occurring in investment grade corporate bonds and state and municipal bonds.
The document discusses various topics related to insurance markets and management, including:
1. Risk managers are taking a long-term view of the financial crisis and are focusing on strengthening loss prevention over increasing insurance.
2. Insurers are asked to improve claims settlement efficiency while also innovating products and coverage.
3. Knowledge of risks and adequate insurance coverage varies across industries and countries.
Steven Glaze Kansas City one of the bests building contractor. He focuses on amending an existing structure rather than building latest one. He mainly improves design or performance and increases the home’s value and makes it more adorable to buyers. Of his main functions architectonics, design, and arrangement are main.
This document provides an overview of credit default swaps (CDS) and analyzes them in three sentences or less:
The document outlines different types of CDS including single name, binary, basket, and portfolio CDS. It discusses the cash flows, hedging applications, and credit risks associated with each type. The document also analyzes how factors like principal, probability of default, and protection period impact the expected protection of CDS.
This document is a presentation on the internal ratings-based (IRB) approach for calculating capital requirements under Basel III. It includes outlines, definitions, formulas and examples for calculating key risk metrics like exposure at default, loss given default, probability of default, expected loss, unexpected loss and capital requirements under the retail, advanced, and foundation IRB approaches. Formulas vary depending on the type of exposure, such as residential mortgages, corporate exposures, or financial institutions. The document also discusses credit risk mitigation techniques.
This document provides an introduction to credit risk factors and measures. It discusses key concepts like exposure at default, loss given default, probability of default, expected loss, and one-year expected loss. It also provides an example of calculating these measures for a simple loan with a principal of $10,000, loss given default of 90%, probability of default of 3%, and residual maturity of 3 years. The expected loss is calculated as $786 and one-year expected loss is $270 for this loan.
This document discusses credit indices and CDS index contracts. It begins with defining a credit index as the average CDS spreads of a group of underlying single name CDS contracts. It then outlines the major credit indices published by Markit, including the CDX and iTraxx families. The document also discusses CDS index contracts, noting they are a portfolio of underlying single name CDSs. It explains features like upfront payments, premiums, cash settlement, and the valuation and credit risks associated with long and short positions in a CDS index contract.
This document provides an outline for Chapter 14 of a textbook on managing credit risk under Basel III. It discusses collateralized debt obligations (CDOs), including their characteristics, rating, assessment, design and appendices. The chapter covers topics such as cash flow and synthetic CDOs, tranching, and the functional purposes and rating of CDOs.
This document provides an overview of corporate credit analysis based on Chapter 8 of the textbook "Managing Credit Risk Under The Basel III Framework, 3rd ed". It discusses traditional corporate credit analysis methods, Merton's corporate default model, financial ratios analysis, and Altman's Z-score models. The key points covered include how to calculate historical volatility, identify risk-free rates, derive asset volatility from equity volatility, and determine probability of default using Merton's model. Financial statement items and types of financial ratios for analysis are also outlined.
This document provides an overview of Chapter 14 from the textbook "Managing Credit Risk Under The Basel III Framework, 3rd ed" on collateralized debt obligations (CDOs). It discusses how CDOs redistribute credit risk from illiquid debt markets to create investment opportunities with different risk-return profiles. CDOs issue multiple tranches that allocate cash flows and losses in order of seniority, with senior tranches receiving priority over mezzanine and equity tranches. CDOs can be structured on actual debt portfolios or through synthetic transactions using credit default swaps.
This document discusses key concepts related to the IFRS 9 accounting framework. It covers book value, which is the value calculated according to IFRS 9 rules. For loans, book value equals the outstanding principal. It also discusses credit provision and interest income calculations. Credit provision depends on the credit risk and can include general or specific provisions based on expected losses. Interest income factors in any specific credit provisions.
Chapter 18 internal ratings based approachQuan Risk
This document provides an overview of the internal ratings-based (IRB) approach for calculating capital requirements for credit risk under Basel III. It covers the theory behind the IRB approach and outlines the specific formulas used for different types of exposures, including retail, institutional, corporate and sovereign exposures. The document also discusses topics like credit risk mitigation techniques, internal ratings systems, probability of default estimates, and implementation of the IRB approach.
This document summarizes key aspects of modeling heterogeneous debt portfolios. It discusses Moody's binominal expansion technique for modeling portfolios with homogeneous exposures and probabilities of default. For heterogeneous portfolios, it describes using Monte Carlo simulation to estimate a range of potential worst case losses. Industry practices for modeling various types of heterogeneous portfolios are also outlined.
This document discusses key aspects of the IFRS 9 accounting framework for financial instruments, including:
1) It distinguishes between price, value, market value, model value, and book value as ways of determining the worth of financial assets.
2) It explains how book value, credit provisions, and interest income are calculated under IFRS 9 based on factors like credit risk and expected losses.
3) It provides examples and outlines how the principles of IFRS 9 can be extended to different types of financial instruments.
This document discusses different types of credit linked notes (CLNs), including single name CLNs, basket CLNs, and market value CLNs. It describes how each type works, including how they are structured using special purpose entities to isolate credit risk. Key details covered include how the cash flows of each CLN type are linked to underlying debts, how they are priced and valued, and how their credit risks are assessed.
3.Quantitative Problem Bellinger Industries is considering two .docxdomenicacullison
3.
Quantitative Problem:
Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 9%.01234 Project A-1,010630310270320Project B-1,010230245420770
What is Project A's NPV? Round your answer to the nearest cent. Do not round intermediate calculations.
$
What is Project B's NPV? Round your answer to the nearest cent. Do not round intermediate calculations.
$
If the projects were independent, which project(s) would be accepted?
-Select-NeitherProject AProject BBoth projects A and BCorrect 1 of Item 3
If the projects were mutually exclusive, which project(s) would be accepted?
4.
Quantitative Problem:
Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 10%.01234 Project A-1,200630330290350Project B-1,200230265440800
What is Project A’s IRR? Do not round intermediate calculations. Round your answer to two decimal places.
%
What is Project B's IRR? Do not round intermediate calculations. Round your answer to two decimal places.
%
If the projects were independent, which project(s) would be accepted according to the IRR method?
-Select-NeitherProject AProject BBoth projects A and BCorrect 1 of Item 3
If the projects were mutually exclusive, which project(s) would be accepted according to the IRR method?
-Select-Neither Project AProject BBoth projects A and BCorrect 2 of Item 3
Could there be a conflict with project acceptance between the NPV and IRR approaches when projects are mutually exclusive?
-Select-YesNoCorrect 3 of Item 3
The reason is
-Select-the NPV and IRR approaches use the same reinvestment rate assumption so both approaches reach the same project acceptance when mutually projects are considered.the NPV and IRR approaches use different reinvestment rate assumptions so there can be a conflict in project acceptance when mutually exclusive projects are considered.Correct 4 of Item 3
Reinvestment at the
-Select-IRRWACCCorrect 5 of Item 3
is the superior assumption, so when mutually exclusive projects are evaluated the
-Select-NPVIRRCorrect 6 of Item 3
approach should be used for the capital budgeting decision.
5.
Quantitative Problem:
Bellinger Industries is considering two projects for inclusion.
This document provides an overview of a predictive model developed by Transparent Solutions to forecast surety claims in the construction industry. The model was able to accurately predict 78% of claims on a back-tested basis by analyzing operational, financial, and macroeconomic risk factors for over 18,000 contractors. The ratings assigned by the model can help insurers and banks better price bonds and loans based on contractor risk levels. Implementing this predictive solution could help reduce losses from project failures in the construction industry.
This document discusses interest rate derivatives, including forward rate agreements (FRAs) and interest rate swaps. It provides an overview of how FRAs and interest rate swaps work, including their cash flows and valuation. FRAs allow parties to lock in the interest rate on a future loan, while interest rate swaps involve the exchange of fixed and floating interest rate payments between two parties to hedge against interest rate risk. The document uses examples to illustrate how to model the payoffs and value long positions in these derivatives.
This document provides an overview of the Basel III framework for regulating bank capital requirements. It discusses key concepts such as credit risk, capital charges, and regulatory capital. The Basel III framework includes four pillars - minimum capital requirements, supervisory review, public disclosure, and liquidity requirements. The standardized approach calculates capital charges based on factors like exposure at default, credit ratings, and risk mitigation techniques. Regulatory capital consists of tier 1 and tier 2 capital, with minimum requirements for total capital to match capital charges.
This document summarizes Chapter 17 of the textbook "Managing Credit Risk Under The Basel III Framework, 3rd ed". It discusses the Basel III framework for regulating bank capital requirements and credit risk. The key points covered include the four pillars of Basel III (minimum capital requirements, supervisory review, public disclosure, and liquidity standards), the standardized approach for calculating capital charges, and the types of financial instruments that qualify as regulatory capital.
This document provides an overview of Chapter 20 from the textbook "Managing Credit Risk Under The Basel III Framework, 3rd ed" which discusses regulatory credit exposures. It covers major debt exposures including loans, bonds, credit derivatives, and commitments. It also discusses securitization exposures, extensions to standardized and IRB approaches, specialized lending, and securities finance transactions. The document is authored by Dr. LAM Yat-fai and is intended to declare copyright and outline the key topics covered in Chapter 20.
Similar to Chapter 7 homogeneous debt portfolios (20)
The document summarizes key aspects of the Financial Action Task Force (FATF) and its initiatives on anti-money laundering, including its third mutual evaluation (ME3) process from 2004 to 2013. The FATF is an inter-governmental body that sets global standards and assesses compliance to combat money laundering and terrorist financing. Through its ME3, the FATF evaluated over 180 countries' compliance with its 40+9 recommendations, with results showing varying levels of compliance among countries.
This document discusses control self-assessment (CSA), where a business unit assesses its operations and activities against a list of control procedures. It describes how the CSA involves using checklists to evaluate compliance levels for each control procedure as full, partial, or not applicable. Supplementary information and corrective action plans may be required depending on the compliance level. Summaries of the CSA can then be generated by subsidiary bank, control procedure, or both to analyze compliance across the organization.
This document provides an overview of private banking and anti-money laundering practices. It defines private banking as maintaining a minimum of $8 million in liquid assets under management. It describes the use of offshore companies and trusts, which require enhanced due diligence. Private banking customers are considered higher risk and require knowing the customer, source of wealth, ongoing monitoring and suspicious transaction reporting. Detailed record keeping is needed with analyses justifying lower money laundering risk.
Chapter 8 career and professional developmentQuan Risk
This document provides an overview of career and professional development in anti-money laundering (AML) compliance. It discusses the career path of an AML compliance officer and various professional qualifications available, including the Certified Anti-Money Laundering Specialist (CAMS) certification. The CAMS certification, administered by the Association of Certified Anti-Money Laundering Specialists, is currently the most prominent global AML compliance certification. The document also outlines the CAMS certification requirements and examination process.
The document discusses regulatory technology (RegTech) solutions for anti-money laundering (AML) and counter-terrorist financing (CTF). It covers HKMA's RegTech initiatives, remote account opening using digital identity verification, automated name screening, transaction monitoring, and network analysis. Remote account opening involves verifying the authenticity of identity documents and matching facial images. Name screening includes priority screening, web/API searches, and batch screening. Transaction monitoring identifies irregular transactions that deviate from normal patterns using machine learning.
This document provides an overview of an anti-money laundering (AML) compliance program. It discusses the key elements of an effective AML compliance program, including senior management oversight, policies and procedures, IT systems, training, record keeping, compliance reviews, independent assessments, and audits. It also outlines some of the professional challenges facing AML compliance officers, such as evolving regulatory requirements and balancing the needs of operations, regulators, and law enforcement.
This document discusses internal investigations of exceptions flagged by anti-money laundering systems. It outlines the SAFE assessment approach used by the JFIU, which involves screening transactions for suspicious indicators, asking customers questions, finding customer records, and evaluating all information. Common exceptions involve customer names matching sanctions lists or transactions resembling suspicious scenarios. Internal assessments justify false positives while suspicious transaction reports are filed for true positives.
This document discusses suspicious transactions and money laundering. It covers three key topics: sanctions list matching, transaction monitoring, and record keeping. Sanctions list matching involves searching a counterparty name against sanctions lists to determine if they are a sanctioned person. Transaction monitoring is the process of analyzing related transactions to identify potential money laundering trades based on factors like customer risk profile, transaction amounts, frequencies, and topologies. Proper record keeping of investigations and decisions is also important for regulatory compliance.
This document provides an overview of know your customer (KYC) procedures for financial institutions. It discusses collecting basic customer due diligence information such as identity documents and address for individuals. It also describes risk assessing customers and categorizing them as regular, medium, or higher risk. Higher risk customers require enhanced customer due diligence and justification that they are not involved in money laundering. The document outlines KYC procedures for individuals and corporations.
Chapter 2 the regulatory framework of amlQuan Risk
The chapter discusses Hong Kong's regulatory framework for anti-money laundering (AML). It outlines several key ordinances related to money laundering and terrorist financing. It then describes Hong Kong's AML statutory framework, including the core Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). It also discusses the AML regulatory framework and the different regulators responsible for financial institutions and other industries.
Chapter 6 career and professional developmentQuan Risk
This document provides an overview of career and professional development in compliance. It begins with an outline covering the career of compliance and professional development. It then discusses inflated salary surveys for compliance, internal audit, and risk management roles. Various formulas related to financial regulations are also presented, including the Black-Scholes formula and credit risk capital charge calculations. The document concludes by examining the strong demand for compliance professionals and reasons for this, such as the experience-oriented nature of compliance work and lack of mainstream education programs.
This document provides an overview of financial compliance programs and practices. It discusses the compliance function, outlines of a typical compliance program, and professional challenges facing compliance officers. The key points are:
1) A compliance program typically includes policies, procedures, IT systems, training, reviews and audits to ensure a financial institution follows regulations.
2) Compliance officers act as a liaison between the institution and regulators, developing internal controls and interpreting rules.
3) Major challenges include evolving rules, limited resources, and balancing business needs with regulatory requirements.
Chapter 4 securities and futures regulationsQuan Risk
This document provides an overview of securities and futures regulations in Hong Kong. It discusses the key aspects of the regulatory framework including the Securities and Futures Ordinance, the Securities and Futures Commission as the main regulator, licensing requirements for corporations and individuals, as well as the SFC's roles in supervision and enforcement. The major functions and domains regulated under the SFO are also summarized.
The document summarizes Hong Kong's insurance regulatory framework. It outlines the key components of the Insurance Ordinance including the establishment of the Insurance Authority as the insurance regulator. It describes the regulatory duties of the Insurance Authority including licensing of insurance companies and intermediaries. It also provides an overview of the roles of insurance intermediaries such as agents and brokers and the qualifications required.
The document discusses banking regulations in Hong Kong, including the Banking Ordinance that regulates banking business and deposit taking. It describes the roles of the Hong Kong Monetary Authority as the bank regulator and supervisor, and outlines the licensing process and requirements for different types of banks. The summary provides an overview of the regulatory framework, policies, supervision processes, and enforcement practices related to banking in Hong Kong.
Chapter 1 financial regulations in hong kongQuan Risk
Financial regulations in Hong Kong aim to protect the public interest by controlling business activities in the financial market. Regulations are established through statutory ordinances and non-statutory guidelines. The government implements regulations to prevent issues like systemic risk and to promote Hong Kong as an international financial center. Financial regulators in Hong Kong oversee different sectors, including banking, insurance, securities, and mandatory pensions. Regulations follow a model that includes licensing, policymaking, supervision, enforcement, and appeals to ensure industry compliance.
This document provides an overview of anti-money laundering technologies, including name matching, suspicious scenario detection, and automated machine learning. It discusses algorithms like Jaro-Winkler and Soundex used for name matching against sanctions lists. Suspicious indicators and scenarios involving cash transactions are presented. Cash flow modeling using distributions like lognormal and exponential is described. Finally, machine learning techniques for transaction monitoring are introduced, covering data preparation, model building, and the machine learning cycle.
The document discusses regulatory requirements and technologies related to anti-money laundering (AML). It covers the following key points in 3 sentences:
Regulatory requirements on AML include know-your-customer procedures, sanctions list screening, transaction monitoring, and reporting of suspicious transactions. Remote account opening procedures outlined involve using technologies like facial recognition to verify a customer's identity by matching their selfie to their photo ID. Facial recognition technology works by measuring distance between facial feature points and determining if the difference between a selfie and ID photo is within an established error threshold based on historical data.
This document discusses algorithmic trading and backtesting. It covers several topics:
1. It defines algorithmic trading and lists some common names for it like statistical arbitrage and quantitative trading.
2. It outlines the development process for algorithmic trading strategies, including proposing a strategy, backtesting it on historical data, implementing automated trading, and paper and live trading.
3. It provides examples of simple moving average trading strategies and backtests the strategies on historical data to analyze their performance.
4. It also briefly discusses the Turtle trading experiments and strategies from the 1980s as another example of algorithmic trend following strategies.
The document discusses techniques for classifying outliers in corporate lending data using one-group classification models. It covers regulatory requirements to classify borrowers into multiple grades, challenges with rare default cases, and two common approaches for detecting outliers - using minimum and maximum thresholds and measuring distance to nearest neighbors. The document also proposes using multiple binary classification models to derive shadow credit ratings and identifies lonely outliers as points that cannot find nearby data points.
In a tight labour market, job-seekers gain bargaining power and leverage it into greater job quality—at least, that’s the conventional wisdom.
Michael, LMIC Economist, presented findings that reveal a weakened relationship between labour market tightness and job quality indicators following the pandemic. Labour market tightness coincided with growth in real wages for only a portion of workers: those in low-wage jobs requiring little education. Several factors—including labour market composition, worker and employer behaviour, and labour market practices—have contributed to the absence of worker benefits. These will be investigated further in future work.
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
Vicinity Jobs’ data includes more than three million 2023 OJPs and thousands of skills. Most skills appear in less than 0.02% of job postings, so most postings rely on a small subset of commonly used terms, like teamwork.
Laura Adkins-Hackett, Economist, LMIC, and Sukriti Trehan, Data Scientist, LMIC, presented their research exploring trends in the skills listed in OJPs to develop a deeper understanding of in-demand skills. This research project uses pointwise mutual information and other methods to extract more information about common skills from the relationships between skills, occupations and regions.
5 Tips for Creating Standard Financial ReportsEasyReports
Well-crafted financial reports serve as vital tools for decision-making and transparency within an organization. By following the undermentioned tips, you can create standardized financial reports that effectively communicate your company's financial health and performance to stakeholders.
Seminar: Gender Board Diversity through Ownership NetworksGRAPE
Seminar on gender diversity spillovers through ownership networks at FAME|GRAPE. Presenting novel research. Studies in economics and management using econometrics methods.
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