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Post by mariob on May 5, 2019 16:22:22 GMT
Would you build your home without having calculated if the walls are thick enough? I haven't found anyone who has ever done a quantitative risk analysis of a P2P investment. No one who thought of measuring the risk ... So I do it myself. In this blog you will find the first quantitative risk analysis for p2p investement. Every comment is welcome. www.financial-independence.tk/2019/04/16/how-to-calculate-p2p-platform-risk-part-1/
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ilmoro
Member of DD Central
'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
Posts: 10,840
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Post by ilmoro on May 5, 2019 16:52:03 GMT
Would you build your home without having calculated if the walls are thick enough? I haven't found anyone who has ever done a quantitative risk analysis of a P2P investment. No one who thought of measuring the risk ... So I do it myself. In this blog you will find the first quantitative risk analysis for p2p investement. Every comment is welcome. www.financial-independence.tk/2019/04/16/how-to-calculate-p2p-platform-risk-part-1/There is an old MC analysis of Lendy somewhere on the forums.
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Post by charlata on May 6, 2019 15:58:42 GMT
Would you build your home without having calculated if the walls are thick enough? I haven't found anyone who has ever done a quantitative risk analysis of a P2P investment. No one who thought of measuring the risk ... So I do it myself. In this blog you will find the first quantitative risk analysis for p2p investement. Every comment is welcome. www.financial-independence.tk/2019/04/16/how-to-calculate-p2p-platform-risk-part-1/Lots of people have thought of modelling the risk. Meaningful estimates don't exist for most of the parameters. GIGO.
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Post by southseacompany on May 6, 2019 16:13:08 GMT
Every comment is welcome. It's a nice thought experiment, but the problem is that in reality, originators are certainly correlated as regards their default risk. Hence the central limit theorem may not apply and the overall analysis is moot. Just imagine a recessionary tightening of credit on the European periphery: most originators would be at risk. For P2P as asset class, we are in a time equivalent of the mid-to-late 1920s stock market boom. Central bank rates are at zero, but these loans yield 10%-15% with relatively short durations and few defaults. Of course, your analysis acknowledges this, since you assume an originator default rate of 5%-10% p.a. instead of the current <1%. However, I think it's likely defaults will be clustered, something that a MC simulation of uncorrelated event series won't capture. The rest of my thoughts aren't really related to your article but here goes: In the long run, I think P2P returns are more likely to resemble volatility selling strategies (experiencing steady, consistent growth over many years, punctuated by sudden violent drawdowns), like those of the late optionsellers.com and the formerly popular strategy of buying and holding inverse volatility instruments like XIV. If you look at it in this way, then we can consider that the "implicit volatility" in P2P is at all-time-low levels while investors continue to sell volatility (i.e. invest more in the asset class). This should make anyone at least a bit uneasy when you consider how this strategy worked for Nick Leeson in the 1990s.
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