BRAVE Partners LLP

Business Risk Analysis - Visionary Execution

BRAVE Partners Model Demo - Asset Risk - Bonds
                               
  Settings and Inputs                          
                               
  Assets       State 1: Good Economy   State 2: Bad Economy     Full model  
          PS1     PS2          
  Asset 1 Exposure LGD   PD|S1 S1 Mean S1 Variance   PD|S2 S2 Mean S2 Variance   Mean Variance  
  1 100%        
  2 100%        
                               
                               
                               
  Outputs                            
                               
  Loss Exceedence Curve  
  Probability Loss                          
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
     
     
     

Description and instructions

  • Instructions

  • White boxes are inputs
  • Click the "Reset" button to return the model to its original state
  • To change inputs change the value in the white box and click the "Update" button
  • The outputs will change
  • The outputs are the loss exceedence curve for the portfolio of two bonds
  • The probability column gives the percentile and the loss column gives the loss
  • For example in the "reset" state, thee 99.9 percentile is a loss of 3.0024

  • Description

  • The model measures the risk on a portfolio of two bonds. The bond data are in the left hand cells of the green area.
    • 1: A bond of notional 1 in the reset state. The size of the bonds can be changed.
    • 2: A bond of notional 2 in the reset state
  • There are two economic states in the model. In the reset state there is a 50% probability of a "Good" economy (so a 50% chance of a bad economy). The probability of a good (and therefore a bad) economy can be set in the cell at the top towards the center.
  • Each bond has a different default probability in the two economic states - higher in a bad economy. These probabilities can be set as inputs.

  • Solvency II benefits

  • The model parameters are set directly from items that management would discuss: namely
    • Probabilities of future economic state
    • Bond default rates in each potential future economic state