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Expected Default Frequency
CREDIT RESEARCH & RISK MEASUREMENT EDF Overview FROM MOODY’S ANALYTICS MOODY’S ANALYTICS EDF™ (EXPECTED DEFAULT FREQUENCY) ASSET VOLATILITY CREDIT MEASURES A measure of the business risk of the firm; technically, the standard EDF stands for Expected Default Frequency and is a measure of the deviation of the annual percentage change in the market value of the probability that a firm will default over a specified period of time firm’s assets. The higher the asset volatility, the less certain investors (typically one year). “Default” is defined as failure to make scheduled are about the market value of the firm, and the more likely the firm’s principal or interest payments. value will fall below its default point. According to the Moody’s EDF model, a firm defaults when the market value of its assets (the value of the ongoing business) falls DEFAULT POINT below its liabilities payable (the default point). The level of the market value of a company’s assets, below which the firm would fail to make scheduled debt payments. The default point THE COMPONENTS OF EDF is firm specific and is a function of the firm’s liability structure. It is There are three key values that determine a firm’s EDF credit measure: estimated based on extensive empirical research by Moody’s Analyt- » The current market value of the firm (market value of assets) ics, which has looked at thousands of defaulting firms, observing each firm’s default point in relation to the market value of its assets » The level of the firm’s obligations (default point) at the time of default. -
Money Market Fund Glossary
MONEY MARKET FUND GLOSSARY 1-day SEC yield: The calculation is similar to the 7-day Yield, only covering a one day time frame. To calculate the 1-day yield, take the net interest income earned by the fund over the prior day and subtract the daily management fee, then divide that amount by the average size of the fund's investments over the prior day, and then multiply by 365. Many market participates can use the 30-day Yield to benchmark money market fund performance over monthly time periods. 7-Day Net Yield: Based on the average net income per share for the seven days ended on the date of calculation, Daily Dividend Factor and the offering price on that date. Also known as the, “SEC Yield.” The 7-day Yield is an industry standard performance benchmark, measuring the performance of money market mutual funds regulated under the SEC’s Rule 2a-7. The calculation is performed as follows: take the net interest income earned by the fund over the last 7 days and subtract 7 days of management fees, then divide that amount by the average size of the fund's investments over the same 7 days, and then multiply by 365/7. Many market participates can use the 7-day Yield to calculate an approximation of interest likely to be earned in a money market fund—take the 7-day Yield, multiply by the amount invested, divide by the number of days in the year, and then multiply by the number of days in question. For example, if an investor has $1,000,000 invested for 30 days at a 7-day Yield of 2%, then: (0.02 x $1,000,000 ) / 365 = $54.79 per day. -
IBM XVA Sensitivities V1.0 Enables High-Performance Calculation Of
IBM United States Software Announcement 218-456, dated October 16, 2018 IBM XVA Sensitivities V1.0 enables high-performance calculation of XVA exposure measures and their sensitivity to market data, without the need for specialist hardware Table of contents 1 Overview 3 Technical information 2 Key prerequisites 3 Ordering information 2 Planned availability date 4 Terms and conditions 2 Product positioning 7 Prices 2 Program number 8 Order now 3 Publications At a glance IBM(R) XVA Sensitivities V1.0 leverages optimization and acceleration techniques that are designed to give high-performance acceleration without the need for expensive or specialist hardware. These techniques include: • Adjoint Automatic Differentiation (AAD) • Dynamic compilation • Smart simulation XVA Sensitivities V1.0 enables: • On-demand calculation of baseline X-Value Adjustment (XVA) measures and sensitivities that are important for regulatory and hedging purposes • Re-hedging of risk due to XVA during times of significant market stress • XVA desks to perform timely calculation of P&L attribution Overview XVA Sensitivities V1.0 is designed to enable banks to perform an on-demand calculation of the baseline XVA measures and sensitivities that are important for both regulatory reporting and efficient hedging of risk. These XVA measures include Credit Valuation Adjustment (CVA), Debt Valuation Adjustment (DVA), and Funding Valuation Adjustment (FVA). XVA Sensitivities is designed with a newly developed language called Boxy. This language is used to capture the pricing models for the different products traded by the bank. IBM provides a library of such models, and clients have the ability to extend these models or develop their own models as required. -
The Student Loan Default Trap Why Borrowers Default and What Can Be Done
THE STUDENT LOAN DEFAULT TraP WHY BORROWERS DEFAULT AND WHAT CAN BE DONE NCLC® NATIONAL CONSUMER July 2012 LAW CENTER® © Copyright 2012, National Consumer Law Center, Inc. All rights reserved. ABOUT THE AUTHOR Deanne Loonin is a staff attorney at the National Consumer Law Center (NCLC) and the Director of NCLC’s Student Loan Borrower Assistance Project. She was formerly a legal services attorney in Los Angeles. She is the author of numerous publications and reports, including NCLC publications Student Loan Law and Surviving Debt. Contributing Author Jillian McLaughlin is a research assistant at NCLC. She graduated from Kala mazoo College with a degree in political science. ACKNOWLEDGMENTS This report is a release of the National Consumer Law Center’s Student Loan Borrower Assistance Project (www.studentloanborrowerassistance.org). The authors thank NCLC colleagues Carolyn Carter, Jan Kruse, and Persis Yu for valuable comments and assistance. We also thank Emily Green Caplan for research assistance as well as NCLC colleagues Svetlana Ladan and Beverlie Sopiep for their assistance. We also thank the amazing advocates who helped out by surveying their clients, including Herman De Jesus and Liz Fusco with Neighborhood Economic Development Advo cacy Project and Meg Quiat, volunteer attorney at Boulder County Legal Services. This report is grounded in and inspired by the author’s work with lowincome clients. The findings and conclusions in this report are those of the author alone. NCLC’s Student Loan Borrower Assistance Project provides informa tion about student loan rights and responsibilities for borrowers and advocates. We also seek to increase public understanding of student lending issues and to identify policy solutions to promote access to education, lessen student debt burdens, and make loan repayment more manageable. -
Default Option Exercise Over the Financial Crisis and Beyond*
Review of Finance, 2021, 153–187 doi: 10.1093/rof/rfaa022 Advance Access Publication Date: 17 August 2020 Default Option Exercise over the Financial Crisis and beyond* Downloaded from https://academic.oup.com/rof/article/25/1/153/5893492 by guest on 19 February 2021 Xudong An1, Yongheng Deng2, and Stuart A. Gabriel3 1Federal Reserve Bank of Philadelphia, 2University of Wisconsin – Madison, and 3University of California, Los Angeles Anderson School of Management Abstract We document changes in borrowers’ sensitivity to negative equity and show height- ened borrower default propensity as a fundamental driver of crisis period mortgage defaults. Estimates of a time-varying coefficient competing risk hazard model reveal a marked run-up in the default option beta from 0.2 during 2003–06 to about 1.5 dur- ing 2012–13. Simulation of 2006 vintage loan performance shows that the marked upturn in the default option beta resulted in a doubling of mortgage default inci- dence. Panel data analysis indicates that much of the variation in default option ex- ercise is associated with the local business cycle and consumer distress. Results also indicate elevated default propensities in sand states and among borrowers seeking a crisis-period Home Affordable Modification Program loan modification. JEL classification: G21, G12, C13, G18 Keywords: Mortgage default, Option exercise, Default option beta, Time-varying coefficient hazard model Received August 19, 2017; accepted October 23, 2019 by Editor Amiyatosh Purnanandam. * We thank Sumit Agarwal, Yacine Ait-Sahalia, -
Why Do Borrowers Default on Mortgages? a New Method for Causal Attribution Peter Ganong and Pascal J
WORKING PAPER · NO. 2020-100 Why Do Borrowers Default on Mortgages? A New Method For Causal Attribution Peter Ganong and Pascal J. Noel JULY 2020 5757 S. University Ave. Chicago, IL 60637 Main: 773.702.5599 bfi.uchicago.edu Why Do Borrowers Default on Mortgages? A New Method For Causal Attribution Peter Ganong and Pascal J. Noel July 2020 JEL No. E20,G21,R21 ABSTRACT There are two prevailing theories of borrower default: strategic default—when debt is too high relative to the value of the house—and adverse life events—such that the monthly payment is too high relative to available resources. It has been challenging to test between these theories in part because adverse events are measured with error, possibly leading to attenuation bias. We develop a new method for addressing this measurement error using a comparison group of borrowers with no strategic default motive: borrowers with positive home equity. We implement the method using high-frequency administrative data linking income and mortgage default. Our central finding is that only 3 percent of defaults are caused exclusively by negative equity, much less than previously thought; in other words, adverse events are a necessary condition for 97 percent of mortgage defaults. Although this finding contrasts sharply with predictions from standard models, we show that it can be rationalized in models with a high private cost of mortgage default. Peter Ganong Harris School of Public Policy University of Chicago 1307 East 60th Street Chicago, IL 60637 and NBER [email protected] Pascal J. Noel University of Chicago Booth School of Business 5807 South Woodlawn Avenue Chicago, IL 60637 [email protected] 1 Introduction “To determine the appropriate public- and private-sector responses to the rise in mortgage delinquencies and foreclosures, we need to better understand the sources of this phenomenon. -
What Do One Million Credit Line Observations Tell Us About Exposure at Default? a Study of Credit Line Usage by Spanish Firms
What Do One Million Credit Line Observations Tell Us about Exposure at Default? A Study of Credit Line Usage by Spanish Firms Gabriel Jiménez Banco de España [email protected] Jose A. Lopez Federal Reserve Bank of San Francisco [email protected] Jesús Saurina Banco de España [email protected] DRAFT…….Please do not cite without authors’ permission Draft date: June 16, 2006 ABSTRACT Bank credit lines are a major source of funding and liquidity for firms and a key source of credit risk for the underwriting banks. In fact, credit line usage is addressed directly in the current Basel II capital framework through the exposure at default (EAD) calculation, one of the three key components of regulatory capital calculations. Using a large database of Spanish credit lines across banks and years, we model the determinants of credit line usage by firms. We find that the risk profile of the borrowing firm, the risk profile of the lender, and the business cycle have a significant impact on credit line use. During recessions, credit line usage increases, particularly among the more fragile borrowers. More importantly, we provide robust evidence of more intensive use of credit lines by borrowers that later default on those lines. Our data set allows us to enter the policy debate on the EAD components of the Basel II capital requirements through the calculation of credit conversion factors (CCF) and loan equivalent exposures (LEQ). We find that EAD exhibits procyclical characteristics and is affected by credit line characteristics, such as commitment size, maturity, and collateral requirements. -
Nber Working Papers Series
NBER WORKING PAPERS SERIES WAS THERE A BUBBLE IN THE 1929 STOCK MARKET? Peter Rappoport Eugene N. White Working Paper No. 3612 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 February 1991 We have benefitted from comments made on earlier drafts of this paper by seminar participants at the NEER Summer Institute and Rutgers University. We are particularly indebted to Charles Calomiris, Barry Eicherigreen, Gikas Hardouvelis and Frederic Mishkiri for their suggestions. This paper is part of NBER's research program in Financial Markets and Monetary Economics. Any opinions expressed are those of the authors and not those of the National Bureau of Economic Research. NBER Working Paper #3612 February 1991 WAS THERE A BUBBLE IN THE 1929 STOCK MARKET? ABSTRACT Standard tests find that no bubbles are present in the stock price data for the last one hundred years. In contrast., historical accounts, focusing on briefer periods, point to the stock market of 1928-1929 as a classic example of a bubble. While previous studies have restricted their attention to the joint behavior of stock prices and dividends over the course of a century, this paper uses the behavior of the premia demanded on loans collateralized by the purchase of stocks to evaluate the claim that the boom and crash of 1929 represented a bubble. We develop a model that permits us to extract an estimate of the path of the bubble and its probability of bursting in any period and demonstrate that the premium behaves as would be expected in the presence of a bubble in stock prices. -
Understanding Default and Foreclosure
WISCONSIN HOMEOWNERSHIP PRESERVATION EDUCATION Understanding Default & Foreclosure Understanding Default and Foreclosure Section Overview Overview and Goals Foreclosure is the legal process in which a person who has made What is Default? Dealing with default a mortgage (the mortgagor or borrower) in order to borrow Outcomes of Default money loses his or her rights to the mortgaged property. If the Short term problems borrower fails to make payment at the proper time or fails to Repayment agreement meet other obligations specified in the bond or mortgage, the Modification foreclosure process begins. The lender applies to a court for Forbearance authority to sell the property. Money received from a sale is Partial or advance claim applied to debts on the property, including payments due to the Reverse equity mortgage lender. Refinance Long term problems The costs related to foreclosure can be high for both families and Sale of property Hardship assumption communities. Missed payments are generally reflected in credit Pre‐foreclosure/ short sale reports, which can impair a borrower’s ability to use short‐term Deed‐in‐lieu loans. Borrowers who lose their homes to foreclosure or seek Foreclosure bankruptcy may then have severely damaged credit records, The Legal Process of Foreclosure which will restrict their access to loans in the future. In addition, Where to go? these borrowers suffer financial losses on the home. Preparing to call your lender Documents you’ll need Foreclosure can also have negative social and emotional impacts Supplemental materials on families as they lose their home and are forced to move. The Homeowner Affordability and impacts related to foreclosure also spill over into neighboring Stability Plan Additional Resources areas. -
(2015). “Information Disclosures, Default Risk, and Bank Value,” Finance and Economics Discussion Series 2015-104
Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. Information Disclosures, Default Risk, and Bank Value Ilknur Zer 2015-104 Please cite this paper as: Zer, Ilknur (2015). “Information Disclosures, Default Risk, and Bank Value,” Finance and Economics Discussion Series 2015-104. Washington: Board of Governors of the Federal Reserve System, http://dx.doi.org/10.17016/FEDS.2015.104. NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. References in publications to the Finance and Economics Discussion Series (other than acknowledgement) should be cleared with the author(s) to protect the tentative character of these papers. Information Disclosures, Default Risk, and Bank Value Ilknur Zer∗ This version: September 2015 Abstract This paper investigates the causal effects of voluntary information disclosures on a bank's expected default probability, enterprise risk, and value. I measure disclo- sure via a self-constructed index for the largest 80 U.S. bank holding companies for the period 1998{2011. I provide evidence that a bank's management responds to a plausibly exogenous deterioration in the supply of public information by increasing its voluntary disclosure, which in turn improves investors' assessment of the bank risk and value. This evidence suggests that disclosure may alleviate informational frictions and lead to a more efficient allocation of risk and return. -
Post Office Savings Bank Manual (Volume - Ii)
POST OFFICE SAVINGS BANK MANUAL (VOLUME - II) Compilation of POSB Manual Vol‐II 31 Post Office Savings Certificates‐General Chapter-1 POST OFFICE SAVINGS CERTIFICATES-GENREL The rules in this Chapter apply mutatis mutandis to :- i. 5-Year Post Office Cash Certificate (Discontinued from 14.6.1947) ii. 10-Year National Plan Certificates (Discontinued from 31.5.1957) iii. 10-Year National Savings Certificates (1st Issue) (Discontinued from 14.3.1970) iv. 12/7/5 Year National Saving Certificates:-12 Year discontinued from 31.5.1957 7 Year discontinued from 31.5.1957 5 Year discontinued from 30.6.1953 v. 12-Year National Plan Savings Certificates (Discontinued from 14.11.1962) vi. 12-Year National Defence Certificates (Discontinued from 14.3.1970) vii. 7-Year National Savings Certificates (II Issue) (Discontinued from 30.9.1988) viii. 7-Year National Savings Certificates (III Issue) (Discontinued from 31.12.1980) ix. 7-Year National Savings Certificates (IV Issue) (Discontinued from 30.4.1981) x. 7-Year National Savings Certificates (V Issue) (Discontinued from 30.4.1981) xi. 12-Year National Savings Annuity Certificates (Discontinued from 31.12.1980) xii. 5-Year National Development Bonds (Discontinued from 30.4.1981) xiii. Six Year National Savings Certificates (VI Issue) (Discontinued from 31.3.1989) xiv. Six Year National Savings Certificates (VII Issue) (Discontinued from 31.3.1989) xv. 10-Year Social Security Certificates (Discontinued from 31.8.1990) xvi. 5-Year Indira Vikas Patras (Discontinued from 15.7.1999) xvii. Kisan Vikas Patras (Discontinued from 1.12.2011) (re-started from 23.9.2014) xviii. -
TREASURY BILLS Timothy Q
Page 75 The information in this chapter was last updated in 1993. Since the money market evolves very rapidly, recent developments may have superseded some of the content of this chapter. Federal Reserve Bank of Richmond Richmond, Virginia 1998 Chapter 7 TREASURY BILLS Timothy Q. Cook Treasury bills are short-term securities issued by the U.S. Treasury. The Treasury sells bills at regularly scheduled auctions to refinance maturing issues and to help finance current federal deficits. It also sells bills on an irregular basis to smooth out the uneven flow of revenues from corporate and individual tax receipts. Persistent federal deficits have resulted in rapid growth in Treasury bills in recent years. At the end of 1992 the outstanding volume was $658 billion, the largest for any money market instrument. TREASURY BILL ISSUES Treasury bills were first authorized by Congress in 1929. After experimenting with a number of bill maturities, the Treasury in 1937 settled on the exclusive issue of three-month bills. In December 1958 these were supplemented with six-month bills in the regular weekly auctions. In 1959 the Treasury began to auction one-year bills on a quarterly basis. The quarterly auction of one-year bills was replaced in August 1963 by an auction occurring every four weeks. The Treasury in September 1966 added a nine-month maturity to the auction occurring every four weeks but the sale of this maturity was discontinued in late 1972. Since then, the only regular bill offerings have been the offerings of three- and six-month bills every week and the offerings of one-year bills every four weeks.