Missed payments arrears methodology is a method for calculating the amount of arrears on a pool of assets. The missed payments arrears methodology is typically used to calculate the credit risk of a securitisation transaction.
The missed payments arrears methodology works by counting the number of missed payments on each asset in the pool. An asset is considered to be in arrears if a payment is missed. The amount of arrears on an asset is then calculated by multiplying the number of missed payments by the size of the missed payments.
The missed payments arrears methodology can be used to calculate the credit risk of a securitisation transaction in a number of ways. First, the missed payments arrears methodology can be used to calculate the average amount of arrears on the pool of assets. This can be used to assess the overall credit risk of the transaction. Second, the missed payments arrears methodology can be used to calculate the distribution of arrears on the pool of assets. This can be used to assess the concentration of risk in the transaction.
Here are some of the applications of missed payments arrears methodology in the context of securitisation:
- Credit risk assessment: The missed payments arrears methodology can be used to assess the credit risk of a securitisation transaction. This can be done by calculating the average amount of arrears on the pool of assets and the distribution of arrears on the pool of assets.
- Pricing: The missed payments arrears methodology can be used to price the securities that are issued in a securitisation transaction. The higher the level of arrears on the pool of assets, the higher the price of the securities will be.
- Monitoring: The missed payments arrears methodology can be used to monitor the performance of a securitisation transaction. The level of arrears on the pool of assets can be used to assess whether the transaction is performing as expected.
Overall, the missed payments arrears methodology is a valuable tool for assessing the credit risk of a securitisation transaction. It can also be used to price the securities that are issued in a securitisation transaction and to monitor the performance of a securitisation transaction.