A technique that produces estimates of the potential change in the market value of a portfolio over a specified time horizon at given confidence levels.
Prime mortgage loans generally have low default risk and are made to borrowers with good credit records and a monthly income that is at least three to four times greater than their monthly housing expense (mortgage payments plus taxes and other debt payments). These borrowers provide full documentation and generally have reliable payment histories.
Equity investments in operating companies not quoted on a public exchange. Capital for private equity investment is raised from retail or institutional investors and used to fund investment strategies such as leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital.
Likelihood that a customer will fail to make full and timely repayment of credit obligations. Banks using internal models for their Basel II capital calculations estimate PD over a one year time horizon. Rating agencies calculate historic PDs over multiple time horizons.
Offer to buy shares of a company, usually at a premium above the shares market price, for cash or securities or a combination of both. Where only a small proportion of the companys shares are traded on the market and the offer is followed by a compulsory buyout, the process is known as a squeeze-out.
A form of short-term borrowing used primarily by dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day. For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction, (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.
Asset-backed securities for which the underlying asset portfolios are residential mortgages.
Assets adjusted for their associated risks using weightings established in accordance with the Basel Capital Accord. Certain assets are not weighted but deducted from capital.
A process by which assets or cash flows are transformed into transferable securities. The underlying assets or cash flows are transferred by the originator or an intermediary, typically an investment bank, to a special purpose entity which issues securities to investors.
An entity created by a sponsor, typically a major bank, finance company, investment bank or insurance company. An SPE can take the form of a corporation, trust, partnership, corporation or a limited liability company. Its operations are typically limited for example in a securitisation to the acquisition and financing of specific assets or liabilities.