Difference between revisions of "Roll Rates"

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== Definition ==  
 
== Definition ==  
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'''Roll Rates''' help quantify the [[Delinquency]] and [[Default]] behavior of [[Credit Portfolio | credit portfolios ]] with large number of borrowers. The name suggests the ''rolling'' (transfer) of borrowers from one state of delinquency to another.
  
A method to measure expected delinquency.  
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Mathematically the computation of roll rates is related to the estimation of a [[Transition Matrix]]. The size n of this square (n x n) matrix corresponds to the number of distinct [[Past Due]] days that are selected as informative. While any granularity is possible in principle, it is quite typical that the shortest period is 30 days past due, whereas the longest can be 90 days past due or 180 days past due.
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A collection of all relevant roll rates is called a Roll Rate Matrix.  
  
The underlying assumption is that future accounts
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== Estimating a Roll Rate Matrix ==
will continue to flow through delinquent buckets as they have in the past. Dividing the current month's  
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Dividing the current month's delinquency bucket by the prior delinquency bucket, calculates the month's roll  rates in the previous month.
delinquency bucket by the prior delinquency bucket, calculates the month's roll  rates in the previous month.
 
  
== Issues and Challenges ==  
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== Issues and Challenges ==
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Estimating a roll rate matrix constitutes a simple type of a credit [[Risk Model]]. The underlying assumption is that future accounts  will continue to flow through delinquent buckets as they have in the past. In reality changes in the economic environment or other possible [[Risk Factor | risk factors]] affecting a given portfolio may introduce significant dynamics (variability) in the roll rates
  
== References ==
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== See Also ==
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* For credit portfolios that are managed using a [[Credit Rating System]] (more common for [[Corporate Loan]] or Bond portfolios) one can also estimate the [[Rating Migration Matrix]]. While roll matrices and rating migration matrices are related (e.g. delinquency may be an input to ratings) a roll rate matrix is based on observable states, whereas an internal or external rating has a subjective element
  
<references />
 
  
[[Category:Credit Risk‏‎]]
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[[Category:Transition Matrix‏‎]]
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[[Category:Credit Risk]]

Revision as of 00:30, 14 June 2019

Definition

Roll Rates help quantify the Delinquency and Default behavior of credit portfolios with large number of borrowers. The name suggests the rolling (transfer) of borrowers from one state of delinquency to another.

Mathematically the computation of roll rates is related to the estimation of a Transition Matrix. The size n of this square (n x n) matrix corresponds to the number of distinct Past Due days that are selected as informative. While any granularity is possible in principle, it is quite typical that the shortest period is 30 days past due, whereas the longest can be 90 days past due or 180 days past due.

A collection of all relevant roll rates is called a Roll Rate Matrix.

Estimating a Roll Rate Matrix

Dividing the current month's delinquency bucket by the prior delinquency bucket, calculates the month's roll rates in the previous month.

Issues and Challenges

Estimating a roll rate matrix constitutes a simple type of a credit Risk Model. The underlying assumption is that future accounts will continue to flow through delinquent buckets as they have in the past. In reality changes in the economic environment or other possible risk factors affecting a given portfolio may introduce significant dynamics (variability) in the roll rates

See Also

  • For credit portfolios that are managed using a Credit Rating System (more common for Corporate Loan or Bond portfolios) one can also estimate the Rating Migration Matrix. While roll matrices and rating migration matrices are related (e.g. delinquency may be an input to ratings) a roll rate matrix is based on observable states, whereas an internal or external rating has a subjective element

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