mvp2p
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Post by mvp2p on Jun 15, 2018 9:56:27 GMT
Second post here, but I've been digging around on the site for a little bit. I'm curious about people's quantitative approaches to DD when constructing their loan portfolio. Specifically whether people are using various metrics/methods to weight their investments across platforms/originators/countries/timespans/currencies/etc.
I've seen a lot of people talking being done with platform X or interested in platform Y but most of the reasoning seems based on intuition/unquantified past experience. Not knocking either, I'm just curious about quantitative approaches. Thanks!
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TitoPuente
Member of DD Central
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Post by TitoPuente on Jun 16, 2018 10:59:32 GMT
In my opinion trying to apply any quantitative KPI to an extremely small, shallow and illiquid market (essentially not much of a market) will be difficult.
Some have tried to naively apply, for example, sharpe ratios using the formula by the book, with laughable results, of course.
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Post by mrclondon on Jun 16, 2018 18:39:57 GMT
To try to get a visual representation of risk, I categorise each loan as unknown/high/medium/low risk against
- risk of default - risk of loss on default
based on gut feel after reviewing whatever DD evidence is available, and review this regularly during the life of the loan.
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locutus
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Post by locutus on Jun 16, 2018 19:11:25 GMT
To try to get a visual representation of risk, I categorise each loan as unknown/high/medium/low risk against
- risk of default - risk of loss on default
based on gut feel after reviewing whatever DD evidence is available, and review this regularly during the life of the loan.
Pretty much how the banks do it. PD (Probability of Default) and LGD (Loss Given Default).
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jj
Member of DD Central
Jolly Jammy
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Post by jj on Jun 16, 2018 19:34:45 GMT
Impossible to quantitative. You can do all the research you want but can you quantitative the borrower's intent ?
Do your research by all means to reduce risk but you need to KYB (know your borrower).
Past records of the borrower's dealings. For example does the borrower paid on time are some indications of the borrower's intent.
One of my "Pillars of Principle" is KYB but in the end it is gut feeling.
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