Systematic and liquidity risk in sub-prime mortgage-backed assets

The mis-evaluation of risk in securitized financial products is central to understanding the global financial crisis. This paper characterizes the evolution of risk factors affecting collateralized debt obligations (CDOs) based on subprime mortgages. A key feature of subprime mortgage-backed indices is that they are distinct in their vintage of issuance. Using a latent factor framework that incorporates this vintage effect, we show the increasing importance of common factors on more senior tranches during the crisis. An innovation of the paper is that we use the unbalanced panel structure of the data to identify the vintage, credit, common and idiosyncratic effects from a state-space specification.

The impact of large-scale mortgage backed security purchases

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics

Reverse Mortgage em Portugal: uma abordagem actuarial

Reverse Mortgage é um tipo de produto financeiro já comercializado em vários países (EUA, Reino Unido, Austrália, Espanha, etc.) mas que não teve ainda visibilidade em Portugal. Destina-se a pessoas com mais de 65 anos, com habitação própria e livres de encargos com a mesma, que pretendam obter um rendimento extra, dando a sua casa como garantia. Na contratação de uma Reverse Mortgage, os proprietários podem receber um montante inicial e/ou uma renda até ao final das suas vidas, mantendo o usufruto da habitação. No momento da morte, o valor da venda do imóvel é utilizado para pagar o empréstimo contraído. Assim, Reverse Mortgage permite reestabelecer ou reforçar a autonomia financeira de pessoas que, durante a sua vida activa, constituíram património mas que, por algum motivo, perderam poder económico ou se encontram actualmente com dificuldades financeiras e que não estão, no entanto, dispostas a desfazer-se da sua habitação para fazer face aos seus compromissos. Nesta dissertação pretende estudar-se a possibilidade de implementação em Portugal desta solução de hipoteca e analisar do ponto de vista actuarial as diferentes variáveis associadas a este produto, nomeadamente os montantes a receber pelo mutuário.

Assessing fraud risk of selecção, contratação e manutenção de fornecedores process of Sonae Investimentos

The present Work Project (WP) is the result of Sonae’s concern with fraud risk, seeking to implement a method that formally describes and evaluates it in its various forms. In a context of limited human, capital, time and tools’ resources, the Internal Audit (IA) department of the company developed a framework to raise the awareness of top management and identify which processes of its value chain present a higher level of exposure to fraud, with the purpose of redirecting attention to those and prioritizing the creation of new mechanisms to monitor its KPIs’ dynamics.

Dynamic Option Adjusted Spread and the Value of Mortgage Backed Securities (Draft 1)

We extend a reduced form model for pricing pass-through mortgage backed securities (MBS) and provide a novel hedging tool for investors in this market. To calculate the price of an MBS, traders use what is known as option-adjusted spread (OAS). The resulting OAS value represents the required basis points adjustment to reference curve discounting rates needed to match an observed market price. The OAS suffers from some drawbacks. For example, it remains constant until the maturity of the bond (thirty years in mortgage-backed securities), and does not incorporate interest rate volatility. We suggest instead what we call dynamic option adjusted spread (DOAS). The latter allows investors in the mortgage market to account for both prepayment risk and changes of the yield curve.

Dynamic Option Adjusted Spread and the Value of Mortgage Backed Securities (Draft 2)

We extend a reduced form model for pricing pass-through mortgage backed securities (MBS) and provide a novel hedging tool for investors in this market. To calculate the price of an MBS, traders use what is known as option-adjusted spread (OAS). The resulting OAS value represents the required basis points adjustment to reference curve discounting rates needed to match an observed market price. The OAS suffers from some drawbacks. For example, it remains constant until the maturity of the bond (thirty years in mortgage-backed securities), and does not incorporate interest rate volatility. We suggest instead what we call dynamic option adjusted spread (DOAS), which allows investors in the mortgage market to account for both prepayment risk and changes of the yield curve.

Is there Descriminatory Mortgage Pricing against Immigrants in the Spanish Lending Market?

In this paper, we investigate whether evidence of discriminatory treatment against immigrants in the Spanish mortgage market exists. More specifically, we test whether, ceteris paribus, immigrant borrowers tend to be charged with higher interest rates on their mortgages than their Spanish born counterparts. To do so, we use a unique dataset on granted mortgages that contains information not only regarding the conditions of the loan but also the socio-economic characteristics of the mortgagors. We observe that immigrants are systematically charged with higher interest rates. We apply the well known Oaxaca-Blinder decomposition to measure the extent to which this disparate treatment of lenders in mortgage pricing against immigrants is due to discrimination. Our results indicate that approximately two thirds of the gap in the interest rate between Spanish born and immigrant borrowers can be attributed to discriminatory treatment. Key words: Immigration, discrimination, mortgage pricing, housing market. JEL codes: R21, G21, J14

Loss risk through fraud in car insurance

Our objective is to analyse fraud as an operational risk for the insurance company. We study the effect of a fraud detection policy on the insurer's results account, quantifying the loss risk from the perspective of claims auditing. From the point of view of operational risk, the study aims to analyse the effect of failing to detect fraudulent claims after investigation. We have chosen VAR as the risk measure with a non-parametric estimation of the loss risk involved in the detection or non-detection of fraudulent claims. The most relevant conclusion is that auditing claims reduces loss risk in the insurance company.

Vom Finanz- zum Wissenschaftsbetrug : Methode, den Irrungen in der medizinischen Literatur beizukommen [From financial to scientific fraud : Methods to detect discrepancies in the medical literature].

Fraud is as old as Mankind. There are an enormous number of historical documents which show the interaction between truth and untruth; therefore it is not really surprising that the prevalence of publication discrepancies is increasing. More surprising is that new cases especially in the medical field generate such a huge astonishment. In financial mathematics a statistical tool for detection of fraud is known which uses the knowledge of Newcomb and Benford regarding the distribution of natural numbers. This distribution is not equal and lower numbers are more likely to be detected compared to higher ones. In this investigation all numbers contained in the blinded abstracts of the 2009 annual meeting of the Swiss Society of Anesthesia and Resuscitation (SGAR) were recorded and analyzed regarding the distribution. A manipulated abstract was also included in the investigation. The χ(2)-test was used to determine statistical differences between expected and observed counts of numbers. There was also a faked abstract integrated in the investigation. A p<0.05 was considered significant. The distribution of the 1,800 numbers in the 77 submitted abstracts followed Benford's law. The manipulated abstract was detected by statistical means (difference in expected versus observed p<0.05). Statistics cannot prove whether the content is true or not but can give some serious hints to look into the details in such conspicuous material. These are the first results of a test for the distribution of numbers presented in medical research.

National Fraud Initiative

The Public Health Agency is required by law to protect the public funds it administers. This A4 sheet provides information on the National Fraud Initiative.

National Fraud Initiative

The Public Health Agency (PHA) is required by law to protect the public funds it administers. This A4 sheet provides information on the National Fraud Initiative.