1. Most digital euros are created by
- Commercial banks
2. Too big to fail
- Reason for regulation: avoid monopolies (HHI)
- Banking groups to big and interconnected, would collapse the
economy
- Government support due to known being saved = moral hazard
3. Calculate expected loss (EL) from 2 loans
N
- E ( L )=∑ EaD i LGDi PD i
i=1
4. Calculate VaR with given PD and LGD
- Value at Risk is the highest loss that is only surpassed in X% of all
cases within a given time horizon.
- Var= position × extreme change
5. Expected Shortfall
- An alternative to VaR is called Expected Shortfall, which is the
average loss, given that the loss is higher than the VaR. More
clear on extreme risk.
6. Why use logistic regression
- Linear has outcomes below 0 and above 1 -> gives negative PB
or above 100%
- Logistic gives outcome between 0 and 1
7. Difference between forward and futures
- Forward contract = A contract where we determine today the
interest rate of an investment or financing the future
- Differences: M2M daily vs fixed, standardized vs tailormade,
minimal risk, delivery of assets before maturity
8. Concept power
- We analyze ability to predict using the “power” measure
- Sort values from (expected) bad to (expected) good (equity)
9. 1000 loans, 40 defaults, recovery rate 60% -> Calculate PD, LGD
- VaR berekenen door PD (40/1000) en LGD (100%-60%)
10. Reinvestment risk and refinancing risk
- Interest rate risk: the risk of a change in (organizational) value
due to a mismatch between the maturities of assets and liabilities
- Refinancing risk: When maturity liabilities < maturity assets
- Reinvestment risk: When maturity liabilities > maturity assets
11. LGD modelling calculate reserves/capital RWA
Claim−Recoveries+Costs
- LGD obs = (Observed Workout LGD)
EaD obs
- LGD obs =P ( Cure ) × LGD cure+[1−P ( Cure )]× LGDirr
Costscure
- LGD cure=
EaD
- Commercial banks
2. Too big to fail
- Reason for regulation: avoid monopolies (HHI)
- Banking groups to big and interconnected, would collapse the
economy
- Government support due to known being saved = moral hazard
3. Calculate expected loss (EL) from 2 loans
N
- E ( L )=∑ EaD i LGDi PD i
i=1
4. Calculate VaR with given PD and LGD
- Value at Risk is the highest loss that is only surpassed in X% of all
cases within a given time horizon.
- Var= position × extreme change
5. Expected Shortfall
- An alternative to VaR is called Expected Shortfall, which is the
average loss, given that the loss is higher than the VaR. More
clear on extreme risk.
6. Why use logistic regression
- Linear has outcomes below 0 and above 1 -> gives negative PB
or above 100%
- Logistic gives outcome between 0 and 1
7. Difference between forward and futures
- Forward contract = A contract where we determine today the
interest rate of an investment or financing the future
- Differences: M2M daily vs fixed, standardized vs tailormade,
minimal risk, delivery of assets before maturity
8. Concept power
- We analyze ability to predict using the “power” measure
- Sort values from (expected) bad to (expected) good (equity)
9. 1000 loans, 40 defaults, recovery rate 60% -> Calculate PD, LGD
- VaR berekenen door PD (40/1000) en LGD (100%-60%)
10. Reinvestment risk and refinancing risk
- Interest rate risk: the risk of a change in (organizational) value
due to a mismatch between the maturities of assets and liabilities
- Refinancing risk: When maturity liabilities < maturity assets
- Reinvestment risk: When maturity liabilities > maturity assets
11. LGD modelling calculate reserves/capital RWA
Claim−Recoveries+Costs
- LGD obs = (Observed Workout LGD)
EaD obs
- LGD obs =P ( Cure ) × LGD cure+[1−P ( Cure )]× LGDirr
Costscure
- LGD cure=
EaD
