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Advanced IRB
The term Advanced IRB or A-IRB is an abbreviation of advanced internal ratings-based approach, and it refers to a set of credit risk measurement techniques proposed under Basel II capital adequacy rules for banking institutions. Under this approach the banks are allowed to develop their own empirical model to quantify required capital for credit risk. Banks can use this approach only subject to approval from their local regulators. Under A-IRB banks are supposed to use their own quantitative models to estimate PD ( probability of default), EAD ( exposure at default), LGD ( loss given default) and other parameters required for calculating the RWA ( risk-weighted asset). Then total required capital is calculated as a fixed percentage of the estimated RWA. Reforms to the internal ratings-based approach to credit risk are due to be introduced under the Basel III: Finalising post-crisis reforms. Some formulae in internal-ratings-based approach Some credit assessments in standar ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Expected Loss
Expected loss is the sum of the values of all possible losses, each multiplied by the probability of that loss occurring. In bank lending (homes, autos, credit cards, commercial lending, etc.) the expected loss on a loan varies over time for a number of reasons. Most loans are repaid over time and therefore have a declining outstanding amount to be repaid. Additionally, loans are typically backed up by pledged collateral whose value changes ''differently'' over time vs. the outstanding loan value. Three factors are relevant in analyzing expected loss: * Probability of default (PD) * Exposure at default (EAD) * Loss given default (LGD) Simple example * Original home value $100, loan to value 80%, loan amount $80 ** outstanding loan $75 ** current home value $70 ** liquidation cost $10 * Loss given default = Magnitude of likely loss on the exposure / Exposure at default ** -$75 loan receivable write off Exposure at default ** +$70 house sold ** -$10 liquidation cost paid = ** ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Effective Maturity
Effectiveness is the capability of producing a desired result or the ability to produce desired output. When something is deemed effective, it means it has an intended or expected outcome, or produces a deep, vivid impression. Etymology The origin of the word "effective" stems from the Latin word effectīvus, which means creative, productive or effective. It surfaced in Middle English between 1300 and 1400 A.D. Usage In mathematics and logic, ''effective'' is used to describe metalogical methods that fit the criteria of an effective procedure. In group theory, a group element acts ''effectively'' (or ''faithfully'') on a point, if that point is not fixed by the action. In physics, an effective theory is, similar to a phenomenological theory, a framework intended to explain certain (observed) effects without the claim that the theory correctly models the underlying (unobserved) processes. In heat transfer, ''effectiveness'' is a measure of the performance of a heat excha ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Loss Given Default
Loss given default or LGD is the share of an asset that is lost if a borrower defaults. It is a common parameter in risk models and also a parameter used in the calculation of economic capital, expected loss or regulatory capital under Basel II for a banking institution. This is an attribute of any exposure on bank's client. Exposure is the amount that one may lose in an investment. The LGD is closely linked to the expected loss, which is defined as the product of the LGD, the probability of default (PD) and the exposure at default (EAD). Definition LGD is the share of an asset that is lost when a borrower defaults. The ''recovery rate'' is defined as 1 minus the LGD, the share of an asset that is recovered when a borrower defaults. Loss given default is facility-specific because such losses are generally understood to be influenced by key transaction characteristics such as the presence of collateral and the degree of subordination. How to calculate LGD The LGD calculation ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Probability Of Default
Probability of default (PD) is a financial term describing the likelihood of a default over a particular time horizon. It provides an estimate of the likelihood that a borrower will be unable to meet its debt obligations. PD is used in a variety of credit analyses and risk management frameworks. Under Basel II, it is a key parameter used in the calculation of economic capital or regulatory capital for a banking institution. PD is closely linked to the expected loss, which is defined as the product of the PD, the loss given default (LGD) and the exposure at default (EAD). Overview The probability of default is an estimate of the likelihood that the default event will occur. It applies to a particular assessment horizon, usually one year. Credit scores, such as FICO for consumers or bond ratings from S&P, Fitch or Moodys for corporations or governments, typically imply a certain probability of default. For group of obligors sharing similar credit risk characteristics such as ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Normal Distribution
In statistics, a normal distribution or Gaussian distribution is a type of continuous probability distribution for a real-valued random variable. The general form of its probability density function is : f(x) = \frac e^ The parameter \mu is the mean or expectation of the distribution (and also its median and mode), while the parameter \sigma is its standard deviation. The variance of the distribution is \sigma^2. A random variable with a Gaussian distribution is said to be normally distributed, and is called a normal deviate. Normal distributions are important in statistics and are often used in the natural and social sciences to represent real-valued random variables whose distributions are not known. Their importance is partly due to the central limit theorem. It states that, under some conditions, the average of many samples (observations) of a random variable with finite mean and variance is itself a random variable—whose distribution converges to a normal dist ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Regulatory Capital
A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital adequacy ratio of equity as a percentage of risk-weighted assets. These requirements are put into place to ensure that these institutions do not take on excess leverage and risk becoming insolvent. Capital requirements govern the ratio of equity to debt, recorded on the liabilities and equity side of a firm's balance sheet. They should not be confused with reserve requirements, which govern the assets side of a bank's balance sheet—in particular, the proportion of its assets it must hold in cash or highly-liquid assets. Capital is a source of funds not a use of funds. Regulations A key part of bank regulation is to make sure that firms operating in the industry are prudently managed. The aim is to protect the firms themselves, their custo ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Unexpected Loss
Unexpected may refer to: Film and television * ''Unexpected'' (2005 film), an Italian documentary directed by Domenico Distilo * ''Unexpected'' (2015 film), an American film directed by Kris Swanberg * ''The Unexpected'' (TV series), a 1950s TV anthology series * "Unexpected" (''Heroes''), a television episode * "Unexpected" (''Star Trek: Enterprise''), a television episode Literature * ''The Unexpected'' (1968 comic book), a 1968–1982 DC Comics horror-fantasy series, a continuation of ''Tales of the Unexpected'' * ''The Unexpected'' (2018 comic book), a 2018–2019 DC Comics superhero series * ''The Unexpected'' (novel), a 2000 ''Animorphs'' novel by K.A. Applegate Music * ''Unexpected'' (Angie Stone album) or the title song, 2008 * ''Unexpected'' (Levina album), 2017 * ''Unexpected'' (Lumidee album), 2007 * ''Unexpected'' (Michelle Williams album) or the title song, 2008 * ''Unexpected'' (Sandy Mölling album) or the title song (see below), 2004 *''Unexpected'', an albu ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
