Papers by Mariacristina Uberti
4th International Multidisciplinary Scientific Conference on Social Sciences and Arts SGEM2017, MODERN SCIENCE, 2017
In a lease agreement, when it comes to determine the residual debt at a given date in case of ins... more In a lease agreement, when it comes to determine the residual debt at a given date in case of insolvency or continuous arrears (i.e. an early termination, before the maturity of the lease plan), often the contract decides upon the penalties and some lump sum refund for impairment. Accounting purposes require both the lessor and the lessee to calculate separately for the amount of the outstanding debt and the agreed-upon for the impairment and the penalties. In this paper, the authors propose a model for a precise quantification of the residual debt, the damage impairment and the penalty shares based on the contractual and implicit IRRs and on the market prime rate that is compatible with both financial and accounting perspective. The developed methodology can also be proven capable of loan-sharking behaviours early detection, when a usury threshold is given by the law or inferred from market customaries, so that it can be used also for decision making and financing cost forecasting purposes
Structural Change and Economic Dynamics, 2019
Credit risk migration rates matrices with entries, migrations of stayers and exits are simulated;... more Credit risk migration rates matrices with entries, migrations of stayers and exits are simulated; A mathematical procedure to extrapolate future dynamics conditional to a macroeconomic scenario is developed; IFRS9 segmentation into buckets and prospective estimates of Expected Loss are introduced.
Communications in Nonlinear Science and Numerical Simulation
Applied Mathematical Sciences
Adjustable-Rate Mortgages are often embedded with protective derivate instruments to hedge agains... more Adjustable-Rate Mortgages are often embedded with protective derivate instruments to hedge against mortgage rates volatility risk. First, we explore how writing collar options on adjustable-rates affect the total cost of debt. Then, we achieve a measure for the Benefit-Cost Rate Spread with the intent to monitor the Adjustable-Rate Mortgage global cost. Our findings are useful to provide financial practitioners with better awareness about the benefit-cost rate spread in writing protective options. not set at the beginning of the contract but are modulated over time with the changing of the index-linked rate. To hedge borrower's exposure to interest rate fluctuations, it is common practice to implement risk hedging strategies, such as writing interest rate collars that lock the adjustable-rates to float within a range.
International Journal of Business and Management
In this note, we analyze the impact of the extra-costs payment schedule on the Effective Annual i... more In this note, we analyze the impact of the extra-costs payment schedule on the Effective Annual interest Rate (EAR), one of the most popular global cost measures of consumer credit loan payments. First, we prove that the EAR can be expressed by the financing credit interest rate with an extra-costs interest rate addendum, and we investigate the drivers of this latter. We show that the extra-costs interest rate decreases if extra-costs payments are postponed. Consequently, the EAR is minimum if extra-costs are charged in a lump sum at the expiry date of the contract and maximum if they are charged in a lump sum at the contract beginning time. To explain how the schedule of payments impacts on the EAR, we develop a sensitivity analysis through illustrative applications. We also highlight that EAR depends on the timing of extra-costs payments. In particular, we show that EAR decreases with the increase in the Modified Duration of the cash flow of extra-costs. The results of the paper a...
International Journal of Business and Management
The determination of the residual debt at a given date of a lease agreement, when it occurs the c... more The determination of the residual debt at a given date of a lease agreement, when it occurs the case of insolvency or continuous arrears (i.e. an early termination, before the maturity of the lease plan), is often regulated by the contract, which fixes penalties and some kind of impairment reimbursement. Both the lessor and the lessee are required to calculate separately for the amount of the outstanding debt and the sum of the impairment reimbursement and of the penalties. In this paper, the authors propose a model for a precise quantification of the residual debt, the damage impairment and the penalty shares based on three rates: the contractual rate, the implicit internal rate(s) of return and the market prime rate. This model is consistent with both finance and accounting perspectives. The developed methodology can also be proven capable to detect early any usury behavior, when it is given a threshold by the law or when it can be inferred from the market, therefore improving dec...
International Journal of Business and Management
Partial insolvency in leasing contracts may entail to afford additional late payment costs. In th... more Partial insolvency in leasing contracts may entail to afford additional late payment costs. In this paper we focus on the case that the lessee makes partial payments in due time and settles the debt augumented by the late payment interests later. The presence of the extra-costs drives the lease Effective Annual interest Rate (EAR) to deviate from the lease contract rate. The aim of this work is to illustrate how design the contract payback amortization to stick EAR to the lease contract rate, when the lease contract rate, the late payment rate and the contract term are exogeneously fixed. First we achieve a proxy for EAR given by the lease contract rate plus an extra-charge rate addendum. We show that this latter addendum is sensitive to the payback Macaulay Duration, a weighted size and timing average. Specifically, the longer the Macaulay Duration, the smaller the extra-charge rate addendum. As a consequence, two general rules to drive EAR close to the lease contract rate roll out...
International Journal of Business and Management
Terminating a leasing contract early may entail the payment of additional charges attributable to... more Terminating a leasing contract early may entail the payment of additional charges attributable to penalty and late payment costs. The occurrence of these extra charges push the lease effective Annual Percentage Rate (APR) up. The aim of this note is to discuss the contract early termination extra charge conditions which guarantee the no exceedance of a given APR threshold, whenever the contract expires. In the event the contract provides the lessee the option to terminate the lease prior to the first payment, extra charges shoot APR extraordinarily up and so the penalty costs should be set at zero. In the occurrence that the contract terminates upon the first payment date due to lessee’s exercise of the early termination option, the most severe compliance conditions are those if the termination occurs at the first payment date. If the early termination occurs for lessee’s insolvency, the most severe compliance condition is at correspondence of the first admissible date o...
International Mathematical Forum
This paper addresses an overriding question in the theory of capital structure concerning how ext... more This paper addresses an overriding question in the theory of capital structure concerning how external financing contributes to economic value creation. Adjusted Present Value rule for capital-investment decisions (see , [6]) is used as performance metric of added value. This frame spotlights the contribution to added value attributable to each financing source. We show that levered project and financial leverage add value, at any debt level, if Net Present Value of the investment project and Net Present Value of debt are both positive. However if Net Present Value of debt is negative, external financing destroys economic value and should be taken at the minimum necessary.
Applied Mathematical Sciences
Eurasian Studies in Business and Economics, 2016
International Mathematical Forum, 2016
In their pioneering works on prospect theory Tversky (1979, 1992) propose the ground-breaking ide... more In their pioneering works on prospect theory Tversky (1979, 1992) propose the ground-breaking idea that in making decisions under risk individuals evaluate asymmetrically losses and gains against to a personal reference point. According to the Kahneman and Tversky (1979) statement "losses loom larger than gains", individuals display loss aversion. However, Sacchi and Stanca (2014) argue that people may exhibit gain appetite that states that "gains loom larger than losses". Although the prospect theory can be traced back of more than thirty years, how to formalize asymmetrical preferences to a reference point is still an open issue (see . In this short note we set a preferencebased definition for loss aversion, gain appetite and equally weighted preferences "in the small", i.e. for outcomes around a given reference point; and "in the large", i.e. for any outcome of the domain. The classical Kahneman and Tversky (1979, page 279) loss aversion definition follows as a special case. Keywords: Loss-gain asymmetry, Preference-based definition of loss aversion and gain appetite; Multiple reference points 674 Robert Bordley et al.
Standard transition matrices among classes of credit risk are grounded on few fundamental assumpt... more Standard transition matrices among classes of credit risk are grounded on few fundamental assumptions. Among them, two are specifically relevant. The first standard methodological assumption considers migra-tions are ruled by a transition matrix induced by a homogeneous Markov process generator, even though the recent approaches available in literature are revising its feasibility. In fact, the Markovian assumption implies different borrowers in the same rating class share the same probability to migrate to the same rating class in the future, without care of their rating history. As a second simplifying hypothesis, default state is assumed absorbing even if, very often, empirical evidence rejects it. A further relevant but neglected aspect to take care is that the universe of borrowers is never the same: some borrowers exit the credit system while new ones enter it through time; clearly this extends also to the sample data of a given lender. As a consequence, standard transition ma...
Transition matrix methods for credit risk migrations of borrowers follow three hypotheses. From o... more Transition matrix methods for credit risk migrations of borrowers follow three hypotheses. From one hand, it is assumed migrations are consistent with a homogeneous Markov process: heterogeneous borrowers of the same rating class have the same probability to migrate to a given rating class in the next future, regardless of their histories. From the other hand, it is assumed the default state is absorbing. Theoretical intuition suggests what empirical evidence puts forth: both assumptions are questionable. Moreover, it is commonly neglected that the universe of borrowers changes with time with business cycle relevance: some borrowers exit while some new ones enter into the portfolios of credit institutions; hence, standard transition matrix methods does not take care of portfolio's renewals and a complete recovery. To overcome these axiomatic constraints, the present study suggests the sample of borrowers to be open, with new entries and exits at each time, beyond the only recomb...
We propose a new affine jump-diffusion model for volatility, in which shocks in returns and volat... more We propose a new affine jump-diffusion model for volatility, in which shocks in returns and volatility are driven by separate jump processes. While in literature similar models are usually applied to option pricing, the proposed model is calibrated and used to simulate the volatility behavior of assets in very volatile markets. The proposed model showed a good match with real data, and in several occasions outperformed the existing models.
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Papers by Mariacristina Uberti