Unit 7: Loan Portfolio Valuation and Financial Modeling

Loan Portfolio Valuation and Financial Modeling is a crucial unit in the Professional Certificate in Loan Portfolio Management. This unit focuses on the methods and techniques used to value and model loan portfolios. In this explanation, we will cover key terms and vocabulary related to this unit.

1. Loan Portfolio Valuation

Loan Portfolio Valuation is the process of determining the fair value of a loan portfolio. The fair value is the estimated price for which an asset or liability could be sold in a current transaction between willing parties, assuming that market participants have all relevant information and that there is no undue pressure to sell or buy.

Key terms related to Loan Portfolio Valuation include:

Mark to Market: The process of re-valuing a loan portfolio based on current market prices or yields. This method is typically used for traded loans or securities.

Mark to Model: The process of re-valuing a loan portfolio based on mathematical models that estimate the probability of default, loss given default, and prepayment rates. This method is typically used for non-traded loans.

Expected Credit Loss (ECL): The estimated loss from credit events, such as defaults or delinquencies, over the life of a loan portfolio.

1. Financial Modeling