A Guide to Behavioural Modelling
First published:
ISBN: 978-1-78272-404-9
If you are a Risk.net subscriber you are entitled to 20% off your Risk books purchases. Please email enquiries@riskbooks.com for more information.
As part of your Risk.net subscription you are entitled to 20% off all of your Risk Books purchases. If you would like to place an order please email enquiries@riskbooks.com
Modelling of Prepayment on Fixed Rate Residential Mortgages: A Logistic Regression Approach
Roberto Baccaglini
Modelling of Prepayment on Fixed Rate Residential Mortgages: A Logistic Regression Approach
Introduction
Insights on Banks’ Recourse to Behavioural Models from a Focused IRRBB Stress Test
Implementing Regulatory Guidance on IRRBB Behavioural Models: Challenges and Opportunities
The Stakeholders of Interest Rate Risk Behavioural Models
Governance of Behavioural Models
The Nature of IRRBB and Typical Metrics Employed
A Framework for Developing NMD Behavioural Models
The Literature on NMD Behavioural Models
Interest Rate Risk of Non-maturity Bank Accounts: From Marketing to Hedging Strategy
NMDs and IRRBB: A Methodological Proposal for a Behavioural Model
NMD Modelling: A Financial Wealth Allocation Approach
A Benchmark Framework for NMDs: An Application
NMD Behavioural Models Used in Marketing
The Validation of NMD Behavioural Models
The Choice of Maturity Profile in NMD Behavioural Models
Acknowledging the Elephant in the Room: The Mismatch Centre
Prepayment Risk Modelling for ALM, Finance and FTP: A Survival Model
Modelling of Prepayment on Fixed Rate Residential Mortgages: A Logistic Regression Approach
A Simple Approach to Modelling Prepayment Events
Integrating Credit Risk within the ALM Framework
Modelling Committed Credit Lines
Accounting of the Sight Deposit and Hedging
Loans prepayment deeply affects the risk profile of the banking book of a financial institution as, on one side, it alters the timing of the expected principal cashflows of outstanding loans and, on the other side, it considerably reduces the interest rate margin. From the liquidity risk point of view, neglecting this phenomenon exposes the bank to the risk of overestimating its funding cost, since it would rely on an additional source of funding for the future without the need to renew part of its liabilities. From the interest rate risk perspective, the bank would over-hedge its loan portfolio amortisation profile, with the consequence of having to unwind the excess of hedging positions, often at the price of locking a negative margin. This particularly affects fixed rate loans and, partly, floating rate loans with embedded optionalities, such as caps and floors.
After the origination of a loan, the customer has the possibility to reduce or fully repay the principal amount of the loan at any time before the contractual maturity of the deal. This option can either be exercised or not upon the payment of a penalty,11 In Italy, for instance, the approval of the Bersani law in
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
