What Is the Formula for Calculating Beta? By Steven Nickolas Updated April 19, — Beta is a measure used in fundamental analysis to determine the volatility of an asset or portfolio in relation to the overall market.
Categorization of Exposures To calculate credit risk-weighted assets, a bank must group its exposures into four general categories: It must also identify assets not included in an exposure category and any non-material portfolios of exposures to which the bank elects not to apply the IRB framework.
In order to exclude a portfolio from the IRB framework, a bank must demonstrate to the satisfaction of its primary Federal supervisor that the portfolio when combined with all other portfolios of Calcualtion of beta based on historical that the bank seeks to exclude from the IRB framework is not material to the bank.
Wholesale exposures The proposed rule defines a wholesale exposure as a credit exposure to a company, individual, sovereign or governmental entity other than a securitization exposure, retail exposure, or equity exposure.
Examples of a wholesale exposure include: After considering comments received on the ANPR, the agencies are proposing to retain a separate IRB risk-based capital formula for HVCRE exposures in recognition of the high levels of systematic risk inherent in some of these exposures.
The agencies believe that the revised definition of HVCRE in the proposed rule appropriately identifies exposures that are particularly susceptible to systematic risk.
The agencies seek comment on how to strike the appropriate balance between the enhanced risk sensitivity and marginally higher risk-based capital requirements obtained by separating HVCRE exposures from other wholesale exposures and the additional complexity the separation entails. The New Accord identifies five sub-classes of specialized lending for which the primary source of repayment of the obligation is the income generated by the financed asset s rather than the independent capacity of a broader commercial enterprise.
The sub-classes are project finance, object finance, commodities finance, income-producing real estate, and HVCRE. The New Accord provides a methodology to accommodate banks that cannot meet the requirements for the estimation of PD for these exposure types.
The sophisticated banks that would apply the advanced approaches in the United States should be able to estimate risk parameters for specialized lending exposures, and therefore the agencies are not proposing a separate treatment for specialized lending beyond the separate IRB risk-based capital formula for HVCRE exposures specified in the New Accord.
The agencies are not aware of compelling evidence that smaller firms with the same PD and LGD as larger firms are subject to less systematic risk.
The agencies request comment and supporting evidence on the consistency of the proposed treatment with the underlying riskiness of SME portfolios. Further, the agencies request comment on any competitive issues that this aspect of the proposed rule may cause for U.
Retail exposures Under the proposed rule a retail exposure would generally include exposures other than securitization exposures or equity exposures to an individual or small business that are managed as part of a segment of similar exposures, that is, not on an individual-exposure basis.
Under the proposed rule, there are three subcategories of retail exposure: The agencies propose generally to define residential mortgage exposure as an exposure that is primarily secured by a first or subsequent lien on one-to-four-family residential property.
There would be no upper limit on the size of an exposure that is secured by one-to-four-family residential properties. To be a residential mortgage exposure, the bank must manage the exposure as part of a segment of exposures with homogeneous risk characteristics.
Residential mortgage loans that are managed on an individual basis, rather than managed as part of a segment, would be categorized as wholesale exposures. In practice, QREs typically would include exposures where customers' outstanding borrowings are permitted to fluctuate based on their decisions to borrow and repay, up to a limit established by the bank.
Most credit card exposures to individuals and overdraft lines on individual checking accounts would be QREs. The category of other retail exposures would include two types of exposures.
First, all exposures to individuals for non-business purposes other than residential mortgage exposures and QREs that are managed as part of a segment of similar exposures would be other retail exposures. The agencies are not proposing an upper limit on the size of these types of retail exposures to individuals.
For the purpose of assessing exposure to a single borrower, the bank would aggregate all business exposures to a particular legal entity and its affiliates that are consolidated under GAAP. If that legal entity is a natural person, any consumer loans for example, personal credit card loans or mortgage loans to that borrower would not be part of the aggregate.
A bank could distinguish a consumer loan from a business loan by the loan department through which the loan is made.Total return can be used for much more than just analyzing historical performance.
Calculating expected future total return allows you to put reasonable expectations around your investments. The quick ratio is often called the acid test ratio in reference to the historical use of acid to test metals for gold by the early miners.
If the metal passed the acid test, it was pure gold. If metal failed the acid test by corroding from the acid, it was a base metal and of no value.
How to Calculate Portfolio Risk and Return. Posted in CFA Exam Level 1, Portfolio Management. In this article, we will learn how to compute the risk and return of a portfolio of assets.
Let’s start with a two asset portfolio. Portfolio Return.
Projected earnings based on a set of assumptions and often used to present a business plan (in Latin pro forma means "fo the sake of form").
It also refers to earnings which exclude non-recurring items. Pro-forma earnings are not derived by standard GAAP methods. A stock beta (b) is used to describe the relationship between the individual stock versus the market.
Stock Beta is used to measure the risk of a security versus the market by investors. The risk free interest rate (Rf) is the interest rate the investor would expect to receive from a risk free investment.
Basel II retail modelling approaches. PD Models. Ben Begin - Susie Thomas - PwC - 18th April uses supervisory risk weights to calculate capital based primarily on the asset class historical data is only a starting point. Constraints.