Lesson 23 of 25 · 7 min
What you now know how to do by hand
An interest leg, a blended advance, a trigger, a shortfall and a sale-to-cure are five operations, not five mysteries.
The hand method is a short list. An interest leg is balance × rate × days ÷ 360 under Act/360. A blended advance is the sum of row lending values divided by the sum of row market values. A trigger is balance divided by the threshold. A shortfall is the amount by which the tested book sits below that trigger, or zero. A sale-to-cure is the shortfall multiplied by 1 ÷ (1 − threshold), which on a 70 percent test is 10 ÷ 3.
On the March sample those five finish as $11,343.47, 54.32 percent, $2,655,090.67, $0.00, and not generated. On the 60 percent uniform stress used earlier in the curriculum, the book is $2,413,118, the shortfall is $2,655,090.67 − $2,413,118 = $241,972.67, and the sale-to-cure is $241,972.67 × 10 ÷ 3 = $806,575.57. The operations did not change between the printed month and the stressed month. The book did.
Around that list sit the reconstructions this track added: a running LTV from public last sales, a daily headroom, a single-name implied price that on this statement is negative, a blended decline that equals headroom, a second threshold as a second divisor, and a chain check from one close to the next opening. Each is a rearrangement of the same five operations. None of them requires a model. Track 16 lesson 25 drew that boundary from the other side; this is the set that lives on the near side of it.
What you can do by hand is form every figure the sample prints, and form the same figures on a later morning from later inputs.
Key terms
- Hand method
- The five operations that recover an interest leg, a blended advance, a trigger, a shortfall and a sale-to-cure from a letter's own rows.
- Near-side figure
- A quantity that needs no distribution: a quotient or a product of printed or public inputs, as opposed to a simulated probability.
Worked example
The five operations on March, then on the 60 percent book
Printed March book $6,032,795, close $1,858,563.47, threshold 70 percent. Stressed book $2,413,118, same close.
- Interest leg, March
- $11,343.47
- Blended advance, March
- 54.32%
- Trigger, both books
- $2,655,090.67
- Shortfall, printed book
- $0.00
- Shortfall, 60 percent book
- $241,972.67
- Sale-to-cure on that shortfall
- $806,575.57
$241,972.67 × 10 ÷ 3.
Five operations cover the printed month and the stressed month. The book is the input that changed.
Check yourself
On a 70 percent market-value test, a stressed book of $2,413,118 sits against a trigger of $2,655,090.67. What is the shortfall, and what is the sale-to-cure?
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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.