Author Topic: LC ANAR is nonsense, how should I value my portfolio  (Read 15903 times)

Emmanuel

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Re: LC ANAR is nonsense, how should I value my portfolio
« Reply #30 on: March 04, 2016, 05:52:02 PM »
Return is past performance of the portfolio. It has nothing to do with what may happen to the portfolio today or in the future.

I respectfully disagree, Anil. Because for any loan that is still paying, calculating 'past' return requires to estimate how much it will pay in the future.

For instance, you invest $100 on a 13%, 36-months loan, that makes 3 net payments of $3.34. So the outstanding principal is now $93.07. What's your return?
(calculating ROI for the sake of simplicity, of course IRR would be more accurate):

- If you consider only the payments so far, your return is 3*3.34 / 100 - 1 = -99%
- If you add the outstanding principal, your return is (3*3.34 + 93.07) / 100 - 1 = 3%.
- If you add all the made and future payments, it's (3 + 33) * 3.34 / 100 - 1 = 11%

Here's the solution we came with at LendingRobot: http://blog.lendingrobot.com/research/calculating-expected-return-of-note/

RaymondG

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Re: LC ANAR is nonsense, how should I value my portfolio
« Reply #31 on: March 04, 2016, 07:46:08 PM »
Here's the solution we came with at LendingRobot: http://blog.lendingrobot.com/research/calculating-expected-return-of-note/
It would be better if the hazard fuction also considers the current loan status, as simple as the weights used for adjusting NAR.  Including past payment and credit history after issuance would be the best but too complicated to valuate them.

Fred

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Re: LC ANAR is nonsense, how should I value my portfolio
« Reply #32 on: March 05, 2016, 05:26:34 AM »
Here's the solution we came with at LendingRobot: http://blog.lendingrobot.com/research/calculating-expected-return-of-note/

Quote
A bigger ‘risk’ is that a loan will default, which is when a borrower stops paying before the installments reach term.

Can you clarify how you define "default" in your analysis?  Is it the same as LC's "default: status -- i.e., after Late13-120 but before Charged-Off?

Finally, perhaps you can show the results of your analysis in terms of expected returns by term x grades?

Emmanuel

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Re: LC ANAR is nonsense, how should I value my portfolio
« Reply #33 on: March 07, 2016, 03:44:51 PM »
Here's the solution we came with at LendingRobot: http://blog.lendingrobot.com/research/calculating-expected-return-of-note/
It would be better if the hazard fuction also considers the current loan status, as simple as the weights used for adjusting NAR.  Including past payment and credit history after issuance would be the best but too complicated to valuate them.

We do take into account the current loan status. We do not have enough information to determine how being late affects the risk of default based on the maturity of the loan. So we use a separate function, see the 'Late Status' section at the end of the article.

, but as a separate function. If the loan becomes late, then we discount the payments accordingly.

Emmanuel

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Re: LC ANAR is nonsense, how should I value my portfolio
« Reply #34 on: March 07, 2016, 04:04:45 PM »
Can you clarify how you define "default" in your analysis?  Is it the same as LC's "default: status -- i.e., after Late13-120 but before Charged-Off?
Finally, perhaps you can show the results of your analysis in terms of expected returns by term x grades?

For us, a defaulting loan stopped making payment. So it's after Late 120 days, because 10% of them still make payments, eventually.

And yes, we should definitely show the results. We'll try to update our charts on LendingRobot as soon as possible.