Author Topic: Loss Estimates: NSR vs LC  (Read 2790 times)

brother7

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Loss Estimates: NSR vs LC
« on: July 20, 2014, 11:26:22 PM »
I understand when designing filters, it's the relative change that matters. But some may find it interesting that Lending Club's loss estimates are generally more aggressive than NSR's.

Currently, it's not possible to save Result Options (and Loss Estimates), neither globally nor per saved filter, on NSR.  :-\
« Last Edit: July 20, 2014, 11:42:39 PM by brother7 »

AnilG

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Re: Loss Estimates: NSR vs LC
« Reply #1 on: July 21, 2014, 12:17:16 AM »
Are you confusing 'probability of default' with 'loss given default'?
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brother7

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Re: Loss Estimates: NSR vs LC
« Reply #2 on: July 21, 2014, 03:53:58 AM »
Are you confusing 'probability of default' with 'loss given default'?
I'm not sure, Anil. Perhaps you can help decipher these respective explanations.

From Lending Club website [link]:
Quote
In the Adjusted NAR formula, the Note Status Adjustment Amount is calculated by applying an estimated loss rate to the outstanding principal on any Notes for which the corresponding loan is past due at the present point in time.

From Nickel Steamroller website [link]:
Quote
Loss estimates are used to discount ROI by assuming a percentage of remaining loan principal will be lost based on the current status. For example Charged Off loans might assume 100% loss of remaining principal, while late loans will assume less. The following are the default values used for Loss Estimates.

To me, "applying an estimated loss rate to the outstanding principal" (LC) and "assuming a percentage of remaining loan principal will be lost" (NSR) sound like the same thing.

AnilG

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Re: Loss Estimates: NSR vs LC
« Reply #3 on: July 21, 2014, 07:34:30 PM »
I think Michael can speak for it better as NSR is his creation.

From Wikipedia, [Probability of Default](http://en.wikipedia.org/wiki/Probability_of_default) and [Loss given default](http://en.wikipedia.org/wiki/Loss_given_default)

My understanding is that NSR screenshot you attached shows the probability of default, what percentage of loans are likely to default? The LC sreenshot you attached shows the loss given default, how much are you likely to lose once the loan gets into a particular status. The LC screenshot doesn't show the loss given default for loans with status current or fully paid. The NSR screenshot most likely considers both. Of course fully paid loans don't default so loss given default is zero.

Are you confusing 'probability of default' with 'loss given default'?
I'm not sure, Anil. Perhaps you can help decipher these respective explanations.

From Lending Club website [link]:
Quote
In the Adjusted NAR formula, the Note Status Adjustment Amount is calculated by applying an estimated loss rate to the outstanding principal on any Notes for which the corresponding loan is past due at the present point in time.

From Nickel Steamroller website [link]:
Quote
Loss estimates are used to discount ROI by assuming a percentage of remaining loan principal will be lost based on the current status. For example Charged Off loans might assume 100% loss of remaining principal, while late loans will assume less. The following are the default values used for Loss Estimates.

To me, "applying an estimated loss rate to the outstanding principal" (LC) and "assuming a percentage of remaining loan principal will be lost" (NSR) sound like the same thing.
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com