登录查看更多内容

How can you determine the appropriate frequency for collateral valuation?

由人工智能和领英社区提供技术支持

Collateral valuation is the process of estimating the current market value of an asset that is pledged as security for a loan or a derivative contract. Collateral valuation is important for both lenders and borrowers, as it affects the amount of credit exposure, margin requirements, and potential losses in case of default or market fluctuations. However, collateral valuation is not a one-time exercise. It needs to be updated periodically to reflect the changes in the market conditions and the performance of the underlying asset. How can you determine the appropriate frequency for collateral valuation? Here are some factors to consider.

此文章中的业界达人

由社区从 4 条内容中精选。了解更多

Brian Lo

Former - Group Head of Market & Liquidity Risk in DBS Bank (PhD 1990); Founder and Director, N-Category Advisers

1 Risk profile

The first factor to consider is the risk profile of the collateral and the transaction. The higher the risk, the more frequent the valuation should be. For example, collateral that is volatile, illiquid, or complex, such as derivatives, commodities, or structured products, may require daily or even intra-day valuation, as their prices can change significantly in a short time. On the other hand, collateral that is stable, liquid, or simple, such as cash, government bonds, or corporate debt, may require less frequent valuation, such as weekly, monthly, or quarterly.

添加您的观点

Brian Lo

Former - Group Head of Market & Liquidity Risk in DBS Bank (PhD 1990); Founder and Director, N-Category Advisers
举报内容
As frequent as possible and practical. effort in sourcing of valuation also important to note. For complex structures counterparties might not agree with your valuation so model validation and reserve policy in place is key to discover and quantify sources of discrepancies. Are they due to choice of models? Cut off time of market parameters? Built in XVA affecting valuation? Exotic parameters valuation differences. Just take example of derivatives covered by collateral agreement.

已翻译

赞

2 Regulatory requirements

The second factor to consider is the regulatory requirements that apply to the collateral and the transaction. Depending on the jurisdiction, the type of transaction, and the type of collateral, there may be specific rules or guidelines that prescribe the minimum frequency for collateral valuation. For example, under the Basel III framework, banks are required to value their collateral at least every six months for credit risk mitigation purposes. Similarly, under the European Market Infrastructure Regulation (EMIR), counterparties to non-cleared over-the-counter (OTC) derivatives are required to value their collateral at least daily for margining purposes.

添加您的观点

Brian Lo

Former - Group Head of Market & Liquidity Risk in DBS Bank (PhD 1990); Founder and Director, N-Category Advisers
举报内容
This is misleading. Collateral valuation frequency is specified in case for margining purpose on legal contract eg trading futures in exchange or a Credit Support Annex signed between the 2 counterparties. And then EMIR etc will specify further requirements even for OTC noncleared derivatives because of SIMM.

已翻译

赞

3 Contractual agreements

The third factor to consider is the contractual agreements between the parties involved in the collateral and the transaction. The parties may agree on a frequency for collateral valuation that suits their needs and preferences, as long as it does not violate any regulatory requirements or industry standards. For example, the parties may agree on a frequency that is based on certain triggers or events, such as a change in the credit rating of the borrower or the collateral issuer, a breach of a covenant or a threshold, or a significant market movement.

添加您的观点

4 Operational costs

The fourth factor to consider is the operational costs associated with collateral valuation. The more frequent the valuation, the higher the costs of data collection, analysis, reporting, and reconciliation. The parties may have to balance the benefits of more accurate and timely valuation with the costs of more complex and resource-intensive processes. For example, the parties may opt for less frequent valuation for collateral that is relatively low-value or low-risk, or for transactions that are short-term or low-volume.

添加您的观点

Brian Lo

Former - Group Head of Market & Liquidity Risk in DBS Bank (PhD 1990); Founder and Director, N-Category Advisers
举报内容
always prepared to pay the lawyers (inhouse or exteral) to resolve dispute; but on top of that a complete taxonomy of trade/product/csa/collateral valuation frequency/sources should be maintained to allow detection of concentration of collateral.

已翻译

赞

5 Market best practices

The fifth factor to consider is the market best practices that reflect the common or accepted standards for collateral valuation in the industry or the market segment. The parties may refer to the recommendations or guidelines issued by professional bodies, trade associations, or market infrastructures that represent the interests and views of the market participants. For example, the parties may follow the principles and methodologies for collateral valuation published by the International Swaps and Derivatives Association (ISDA), the International Capital Market Association (ICMA), or the Global Master Repurchase Agreement (GMRA).

添加您的观点

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

添加您的观点

Brian Lo

Former - Group Head of Market & Liquidity Risk in DBS Bank (PhD 1990); Founder and Director, N-Category Advisers
举报内容
Build a taxonomy of trades/products/counterparties/csa/frequency of collateral valuation and most importantly the Margin Period of Risk.

已翻译

赞

Risk Management

+ 关注

给文章评分

我们借助人工智能创建了此文章。您认为这篇文章怎么样？

很棒不太好

举报此文章

查看全部

How can you determine the appropriate frequency for collateral valuation?

1

2

3

4

5

6

1 Risk profile

2 Regulatory requirements

3 Contractual agreements

4 Operational costs

5 Market best practices

6 Here’s what else to consider

Risk Management

给文章评分

感谢您的反馈

更多Risk Management相关文章

更多相关阅读内容

How can you determine the appropriate frequency for collateral valuation?

1

2

3

4

5

6

1 Risk profile

2 Regulatory requirements

3 Contractual agreements

4 Operational costs

5 Market best practices

6 Here’s what else to consider

Risk Management

给文章评分

感谢您的反馈

查看其他技能