Valuation is the process of determining the fair value of a securitisation. In Australian English, valuation is sometimes referred to as "pricing" or "appraising".
Valuation is an important part of securitisation because it helps to ensure that the securitisation is priced correctly. The valuation will be used to determine the price that investors are willing to pay for the securitisation.
There are a variety of different methods that can be used to value a securitisation, including:
- Cash flow discounting: This method values the securitisation by discounting the future cash flows to the present value.
- Monte Carlo simulation: This method uses a computer simulation to estimate the probability of different outcomes and their impact on the value of the securitisation.
- Credit scoring: This method uses a statistical model to predict the likelihood of default for the underlying assets.
The valuation method that is used will depend on the specific securitisation and the preferences of the investors.
Here are some of the applications of valuation in securitisation:
- To determine the price of the securitisation: The valuation will be used to determine the price that investors are willing to pay for the securitisation.
- To assess the risk of the securitisation: The valuation can be used to assess the risk of the securitisation by identifying the factors that could affect the value of the securitisation.
- To manage the securitisation: The valuation can be used to manage the securitisation by identifying areas where the securitisation is exposed to risk.
Valuation is a valuable tool for securitisation. It helps to ensure that the securitisation is priced correctly and that the risk of the securitisation is managed.
Valuation is sometimes referred to as "pricing" or "appraising".