Track 20 of 25

Stressing a position

Apply a drawdown, apply a haircut, apply both, compute headroom, compute the shortfall, and compute how much must be sold to cure.

25 lessons

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What a stress is, as arithmetic rather than a moodYou replace five prices, add the rows again, and rerun four figures; nothing in that sequence has a temperature.7 min
Apply a 19 percent market-wide decline to the March statementEvery row is multiplied by 0.81, the blend does not move, and lending-value LTV prints as 70.01 percent.6 min
Apply a 37 percent decline to Calder onlyOne name can fall by more than a third and the market-value test still has two and a half million dollars of room.6 min
Apply bothThe combined damage is not the sum of the two damages, because Calder cannot fall nineteen percent twice.6 min
Recompute each row's lending value after the moveAdvance rates stay put, so a uniform price move scales every lending-value line by the same 0.81.6 min
Recompute blended after the moveA uniform decline leaves the blend unchanged; a single-name decline raises it, because the cheapest collateral shrinks.6 min
Recompute LTV on both basesNineteen percent takes market LTV to 38 and lending-value LTV to 70, and those two figures describe one afternoon.6 min
Compute the triggerThe trigger is a property of the balance and the threshold, so a price stress that leaves the loan untouched leaves the trigger untouched.5 min
Compute headroom in dollarsHeadroom is market value minus the trigger, and it can be read before any percentage is computed.5 min
Compute headroom in percentA 19 percent decline consumes 10.32 points of headroom, not 19, because the trigger is a fixed dollar figure sitting still.6 min
Compute the shortfall when headroom goes negativeSixty percent takes the book $241,972.67 through the trigger, and that gap is the shortfall.5 min
How much must be sold to cure, at a 70 percent thresholdClosing a $241,972.67 gap at seventy percent means selling $806,575.57, which is the gap divided by 0.30.6 min
The forced-sale multiple on this facilityThe multiple is 3.333… and it was knowable in March, before any price had moved.6 min
Why selling Calder to cure is different from selling the government fundThe same $806,575.57 leaves a 63 percent blend or a 52 percent blend, depending only on which row is sold first.7 min
Apply a haircut widening with no price moveCutting Calder from 35 to 20 costs $276,000.75 of lending value and does not move market LTV by a single basis point.6 min
Apply a haircut widening with a price moveThe same 15-point cut costs $223,560.61 once Calder has already fallen 19 percent, because a haircut is a percentage of a smaller number.6 min
A 63 percent advance rate that is then cut to 48A 15-point cut on Meridian removes $275,745, almost the same dollar figure as the Calder cut, because the two rows were almost the same size.6 min
Nineteen days of a falling path, dailyThere is no positive Calder price that trips the market-value test while the other four rows stay put.6 min
A position worth 1,840,005 that halvesHalving Calder removes $920,002.50 from the book and still leaves $2,457,701.83 of headroom.5 min
Interest continuing to accrue during the stressNineteen days at 7.22 percent on Act/360 adds $7,082.16 to the balance and $10,117.37 to the trigger.6 min
Sequence: price first, then haircut, then a rate resetOn a market-value test the three shocks commute; on a lending-value test the first one already fails.6 min
Sequence reversedReverse the order and the ending book matches — unless a sale was forced in the middle, in which case nothing matches.7 min
The same 30 percent decline, concentrated versus spreadThirty percent off the whole book costs $1,809,838.50; thirty percent off Calder costs $552,001.50; matching the book figure from Calder alone requires a 98 percent fall.5 min
Building a one-page stress from the March statementFour scenarios, one trigger, one multiple, and every figure recomputable from the document above.6 min
What a stress cannot tell youA stress is a second statement with different prices, and a statement does not know whether anyone will wait.8 min

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