Credit Risk Management in the Automotive Industry: Structuring of loan and lease securitizations as integrative solution by Alexander HenerCredit Risk Management in the Automotive Industry: Structuring of loan and lease securitizations as integrative solution by Alexander Hener

Credit Risk Management in the Automotive Industry: Structuring of loan and lease securitizations as…

byAlexander Hener

Paperback | March 30, 2005

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When Alexander Hener started to work on this thesis three years ago, he may not have antic­ ipated today's relevance of his research. The importance is for example reflected in the first asset-backed securities of underlying German auto finance contracts in November 2004, which has been structured by Volkswagen Financial Services. As result of the True-Sale Initiative fostered by the Kreditanstalt fur Wiederaufbau more such transactions can be expected in the future. In this context Mr. Hener analyzes an intuitive question with relevance not only for German captives: which particular contracts from a pool of finance or lease contracts should be securitized in an ABS transaction? The author first analyzes the reasons why portfolios in particular of automotive captives tend to be inefficiently priced. He sets out in detail different interest groups and potential conflicts in auto finance and lease, and suggests securitization as an integrative sol ution. Taking the issuer's point of view a framework is developed which suggests a decision for each contract as to whether it is to be assigned to an ABS transaction. Among other the framework models regulatory capital arbitrage, return on equity and return on risk-adjusted capital optimization. For such an approach the underlying risks, in particular credit risk, must be modeled. With this purpose in mind the feasibility of various credit risk models in the industry context is extensively examined.
Der Verfasser promovierte extern bei Prof. Dr. Johannes Schneider am Lehrstuhl für Volkswirtschaftslehre, insbesondere Wirtschaftstheorie, der Katholischen Universität Eichstätt. In dieser Zeit war er als Doktorand am Forschungszentrum von DaimlerChrysler in Ulm tätig.
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Title:Credit Risk Management in the Automotive Industry: Structuring of loan and lease securitizations as…Format:PaperbackDimensions:185 pagesPublished:March 30, 2005Publisher:Deutscher UniversitätsverlagLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:3824482878

ISBN - 13:9783824482870

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Table of Contents

1 Introduction.- 2 The Automotive Industry.- 2.1 Relevance of the Industry and of the Captive Financial Companies.- 2.2 Risk Management in Industry and Commerce.- 2.2.1 Risks and Risk Management in Banking.- 2.2.2 Risks in Industry and Commerce.- 2.2.3 Risk Management in Industry and Commerce.- 2.2.4 Risks and Risk Management in the Automotive Industry.- 2.3 Stakeholders in the Automotive Industry.- 2.3.1 Classical Stakeholders and Captive Finance Companies.- 2.3.2 The Regulator as Additional Stakeholder.- 2.3.3 Conflict of Interest.- 2.4 Summary.- 3 Credit Risk Models.- 3.1 Model Requirements in the Automotive Industry.- 3.1.1 Types of Products in Car Financing and Leasing.- 3.1.2 Credit Portfolios in the Automotive Industry.- 3.1.3 Data Availability, Empirical and Modeling Requirements.- 3.2 Elements of Credit Risk Modeling.- 3.2.1 Conceptional Issues.- 3.2.2 Parameter Specification.- 3.2.3 Backtesting and Alternatives for Validation.- 3.2.4 Implications for the Automotive Industry.- 3.3 Model Selection.- 3.3.1 Short History of Credit Risk Models.- 3.3.2 Classification of Credit Risk Models.- 3.3.3 Comparability and Mixtures of Models.- 3.3.4 Applicability of Model Types to Auto Portfolios.- 3.3.5 Implementations of CR+.- 4 CreditRisk+ and the Regulatory Model.- 4.1 The Original CreditRisk+ Model.- 4.1.1 Introduction and Survey.- 4.1.2 Data Requirements.- 4.2 Framework of CreditRisk+.- 4.2.1 Probability Generating Functions.- 4.2.2 Assumption I: Default independence conditional on individual default rates.- 4.2.3 Assumption II: Approximation of probability generating function.- 4.2.4 Assumption III: Functional form of the individual default rates.- 4.2.5 Idiosyncratic Sectors.- 4.2.6 Assumption IV: Independent gamma distributions of sector default rates.- 4.2.7 Assumption V: Rounding and standardizing of exposures.- 4.2.8 Computation of the Unconditional Loss Distribution.- 4.2.9 Implied Dependency Structure.- 4.2.10 Discussion.- 4.3 Extensions of CreditRisk+.- 4.3.1 Incorporation of Rating Migrations.- 4.3.2 Default and Loss Correlations.- 4.4 Implementation of CreditRisk+.- 4.4.1 Determination of Loss Distribution.- 4.4.2 Further Issues.- 4.5 The Regulatory Model.- 5 Credit Risk Management.- 5.1 Risk Measures and Contributions.- 5.1.1 Portfolio Risk Measures.- 5.1.2 Examples for Portfolio Risk Measures.- 5.1.3 Risk Contributions.- 5.2 Portfolio Risk Measures and Contributions in CreditRisk+.- 5.2.1 Portfolio Risk Measures.- 5.2.2 Risk Contributions.- 6 A Model for Securitization.- 6.1 Capital and the Management of Financial Institutions.- 6.1.1 Capital.- 6.1.2 Views on Capital at Financial Institutions.- 6.2 Securitization.- 6.2.1 Introduction.- 6.2.2 Proceedings, Classifications, and Structures of Securitization.- 6.2.3 Motivation for Securitizations.- 6.2.4 Excursion: Moody's Approach to Asset-backed Securities.- 6.3 Securitization in the Automotive Industry.- 6.3.1 Issuer's View.- 6.3.2 Investors's View.- 6.3.3 Securitization Example: DC Auto Trust 2002-C.- 6.3.4 Employment of Credit Derivatives.- 6.4 A Model for the Securitization of Car Financing Contracts.- 6.4.1 General Setting.- 6.4.2 Short Survey of Objectives.- 6.4.3 Objective 1: Minimizing Regulatory Capital.- 6.4.4 Objective 2: Regulatory Capital Arbitrage.- 6.4.5 Objective 3: Optimization of RoE and RoRaC.- 6.4.6 Alternative Problem Formulations.- 6.4.7 Extensions of the Model.- 6.5 Regulatory Framework.- 6.5.1 Alignment of the Model in the Regulatory Framework.- 6.5.2 Inputs for the Calculation of Regulatory Capital for Securitized Loans.- 6.5.3 The Supervisory Formula Approach SFA.- 7 Empirical Analysis.- 7.1 Implementation.- 7.1.1 Model Choice, Parameterization and Implementation.- 7.1.2 Implementation of Framework and Problems.- 7.1.3 Simulation of Loss Distribution.- 7.2 Data Information and Manipulations.- 7.2.1 Loss Rate Information.- 7.2.2 Default Rate Information.- 7.2.3 Borrower Information.- 7.3 Results.- 7.3.1 Loss Distribution and Risk Contributions.- 7.3.2 Optimization Results.- 7.4 Conclusion.- 8 Summary and Topics for Future Research.- Appendix: Explicit Calculations for the CR+ Model.- Appendix: Abbreviations.- Appendix: Variables.