Apparatus and method for modeling the risk of loans in a financial portfolio
First Claim
1. A method executed by a computer under the control of a program, said method comprising the steps of:
- storing financial portfolio data in said computer, said financial portfolio data including data on a loan representing a liability for a specified entity of a financial portfolio;
selecting a horizon date for said loan;
designating a distribution function to characterize a probability of different market values for said specified entity at said horizon date;
adjusting a horizon default point threshold at said horizon date until an area bound by said distribution function, said horizon date, and said horizon default point threshold is equal to a horizon date cumulative default rate for said specified entity, so as to characterize risk associated with said loan; and
generating a report and graph characterizing risk associated with said loan.
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Abstract
A method executed by a computer under the control of a program includes the steps of storing financial portfolio data in the computer. The financial portfolio data includes data on a loan representing a liability of a specified entity. A horizon date is selected for the loan. A distribution function is then designated to characterize the probability of different market values for the specified entity at the horizon date. A horizon default point threshold is then adjusted at the horizon date until the area bound by the distribution function, the horizon date, and the horizon default point threshold is equal to a horizon date cumulative default rate for the specified entity. A maturity date is also defined for the loan. A final default point threshold is then determined at the maturity date so that an expected default rate from the horizon date to the maturity date is equal to a maturity date cumulative default rate, less the horizon date cumulative default rate. Once the horizon default point threshold and the maturity default point threshold are defined in this manner, a number of input parameters can be derived for further financial portfolio analyses. The portfolio analyses include loan value correlations between affiliated entities.
123 Citations
17 Claims
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1. A method executed by a computer under the control of a program, said method comprising the steps of:
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storing financial portfolio data in said computer, said financial portfolio data including data on a loan representing a liability for a specified entity of a financial portfolio; selecting a horizon date for said loan; designating a distribution function to characterize a probability of different market values for said specified entity at said horizon date; adjusting a horizon default point threshold at said horizon date until an area bound by said distribution function, said horizon date, and said horizon default point threshold is equal to a horizon date cumulative default rate for said specified entity, so as to characterize risk associated with said loan; and generating a report and graph characterizing risk associated with said loan. - View Dependent Claims (2, 3, 4, 5, 6, 7, 8, 9)
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10. A method executed by a computer under the control of a program, said method comprising the steps of:
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storing financial portfolio data in said computer, said financial portfolio data including data on a first loan of a first specified entity and a second loan of a second specified entity of a financial portfolio; correlating said first loan and said second loan by determining an entity correlation value, and by determining default rate values appropriate to an entity relationship between said first specified entity and said second specified entity; selectively designating said entity relationship as a dependent subsidiary relationship, a semi-dependent subsidiary relationship, and a guaranteed entity relationship, so as to characterize risk associated with said first loan and said second loan; and generating a report and graph characterizing risk associated with said first loan and said second loan. - View Dependent Claims (11, 12)
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13. A computer readable memory that can be used to direct a computer to function in a specified manner, comprising:
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a first module storing financial portfolio data including data on a loan representing a liability for a specified entity of a financial portfolio; a second module to select a horizon date for said loan; a third mobile to designate a distribution function to characterize a probability of different market values for said specified entity at said horizon date; and a fourth module to adjust a horizon default point threshold at said horizon date until the area bound by said distribution function, said horizon date, and said horizon default point threshold is equal to a horizon date cumulative default rate for said specified entity, so as to characterize risk associated with said loan, said fourth module generating a report and graph characterizing risk associated with said loan. - View Dependent Claims (14, 15, 16, 17)
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Specification