c. myblog

October 22, 2015

Observations from ALM Model Validations: NEV – Loans Devalue in Rate Shocks – or Do They?

When considering valuation as a measure of interest rate risk, and value volatility as an indicator of changes in interest rate risk, many institutions perform net economic value (NEV) analysis. When working with credit unions, or performing model validations, a concern many have is ensuring the models have the “right” assumptions. What is the “right” […]

October 8, 2015

Observations from ALM Model Validations: Prepayment Speeds

This blog is a continuation of our series to share observations from A/LM model validations that we’ve performed. Prepayment speed assumptions impact earnings, net worth, and NEV within an A/LM simulation. Too often, though, people may simply expect that their assumptions have been input correctly and are operating as intended. Some of the issues to […]

September 25, 2015

Observations From ALM Model Validations: High Starting NEV Ratios

When performing model validations, it is common to see a net economic value (NEV) ratio that is considerably higher than the credit union’s current net worth ratio. Understanding NEV and net worth are two completely different concepts; there are reasons why starting with a high NEV ratio in the base environment may not be reasonable. […]

September 3, 2015

Observations from ALM Model Validations: Cost of Funds Back Testing

In the course of working with hundreds of credit unions and performing A/LM model validations, one area of weakness we see is in assumptions related to the cost of funds. Quite often, the modeled cost of funds does not (without good reason) represent historical costs as rates rise. There are two major assumptions that influence […]

August 27, 2015

Model Risk Management

Model risk involves the use of financial models, and the potential that errors in setup, input, or interpretation of results can lead to material misstatement of results. Model risk can be present in internally created financial models or in vendor-supplied financial models and/or results. Having a model’s mathematics validated periodically (important only if there is […]

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