new assumption: cumulative default/delinq based on pool

[yellowbean]

Background

it's common to use default rate prepayment rate to projection cashflow on pool on each period, like CDR CPR, which assume x% of performing balance will convert into default or prepayment state

Cumulative loss/default

While for issuers with history data, they can easily estimate total defaulted/loss amount base on history data Then apply Total default/loss $ on a new issued portfolio to project cashflow .

Propose design

• if a portfolio was issued at balance of 100$ ,user input an expected cumulative default amount is 5$
• then the engine "Allocate" the 5$ over the projection span of the portfolio via a user supplied vector
  • the allocation can be a % vector, like 50%,25%25%
  • then 2.5$ was applied at 1st period
  • 1.25$ was applied at 2nd period
  • 1.25$ was applied at 3rd period

on each period , the new default amount will reduce performing balance , then cashflow in the future will be reduce as well.

[yellowbean]

The tricky part is , when project cashflow period by period The default/delinq amount to be applied may not be sufficient. because the amount to be applied is using current balance with prepay applied. if there are lots of prepay ,then there is insufficient remaining balance to be apply with default.

the solution is : keeping tracking of "un applied" delinq/default amount and test if current balance is lower than un-applied amount, then stop projection apply all amounts ,stop projecting further.

But the pitfall still has , because if prepayment is using total default/delinq way. this could lead to competition for current balance as well.

[yellowbean]

Remove Delinq by amount