Forecast PD

Description

The Forecast PD function calculates probabilities of default for each rating/scoring class depending on changes to an external parameter (such as a reference rate).

Using this Function

Syntax

In the Control File, the Forecast PD function is called up as follows:

CODE

[account] = [referenceAccount] * Forecast PD in relation to parameter based on [referenceAccount]

Parameters

[account]

Business figure for which the value should be calculated.
This must be contained in the following input data: Input Files | Financial-Data

{in relation to} parameter

Name of the external parameter used for the calculation.
This must correspond to an entry in the ‘Parameter’ column from the sheet Input Files | FORECASTS.
In addition, the individual estimations for adjusting the probabilities of default for each rating/scoring class depending on the changes to the parameter must be available in the sheet Input Files | ESTIMATIONS_PD.

{based on} [referenceAccount]

Denotes the business figure on the basis of which the estimation of the change should be made.
This must be included in the following input data: Input Files | Financial-Data

Additional required inputs

Customer List

Excel/OpenOffice file customers with sheet CUSTOMER_LIST or file CUSTOMER_LIST.csv
complete customer list including information on residual debt and rating/scoring classes per customer (for details see Input Files | Customer-List)

Historical probabilities of default

These must be included in the sheet Input Files | RISK_PARAMETER for all rating/scoring classes of the customer list.

Examples

Example 1

CODE

[10004] = - [10002] * Forecast PD in relation to reference rate based on [10002]

historical data from 31/12/2023:
- value of the business figure [10002]: 24,500.00
- probabilities of default for all rating/scoring classes of the customer list:
  - rating class AA+: 2.9%
  - rating class AA-: 3.2%
  - rating class A: 3.6%
calculation for 31/12/2024:
- official forecast of the reference rate: 4.2%
- individual estimations of the change of the probabilities of default:
  - rating class AA+
    - reference rate 4% → PD change (basis points) -100
    - reference rate 4.5% → PD change (basis points) 0
    - linear interpolated value of the PD change (basis points): -60
    - calculated probability of default: 2.9% - 0.6% = 2.3%
  - rating class AA-
    - reference rate 4% → PD change (basis points) -75
    - reference rate 4.5% → PD change (basis points) 0
    - linear interpolated value of the PD change (basis points): -45
    - calculated probability of default: 3.2% - 0.45% = 2.75%
  - rating class A
    - reference rate 4% → PD change (basis points) -50
    - reference rate 4.5% → PD change (basis points) 0
    - linear interpolated value of the PD change (basis points): -30
    - calculated probability of default: 3.6% - 0.3% = 3.3%
- current residual debt per rating/scoring class:
  - rating class AA+: 12,176.00
  - rating class AA-: 5,542.00
  - rating class A: 6,782.00
- new value of the business figure [10004]:
  - - (12,176.00 * 2.3% + 5,542.00 * 2.75% + 6,782.00 * 3.3%) = - 656.26