The hard part is predicting the likelyhood of various events. This proposal does nothing to address that problem.
Actually, it does. It lets you, as a potential investor, plug in your own values to the model. So if you think the issuer is undervaluing the default risk, you can use your own default risk numbers and remodel just by changing some values in a XML file or Python script and then running the interpreter again.
Of course, you need your own predictions for the likelihood of various events, but you could even just toss in a "default_risk = default_risk*1.5" line if you wanted to.
> > The hard part is predicting the likelyhood of various events. This proposal does nothing to address that problem.
> Actually, it does.
Actually it doesn't. As you wrote later
> Of course, you need your own predictions for the likelihood of various events,
That's the hard problem.
> It lets you, as a potential investor, plug in your own values to the model.
Right. It does nothing to help you figure out what those values should be. It merely tells you the consequences of whatever values you use.
Expressing how payout works as a python program does nothing to help you figure out whether 10% of the mortgages in a given portfolio will go into default. It only lets you compute the consequences of that event.
Comments
The hard part is predicting the likelyhood of various events. This proposal does nothing to address that problem.
Actually, it does. It lets you, as a potential investor, plug in your own values to the model. So if you think the issuer is undervaluing the default risk, you can use your own default risk numbers and remodel just by changing some values in a XML file or Python script and then running the interpreter again.
Of course, you need your own predictions for the likelihood of various events, but you could even just toss in a "default_risk = default_risk*1.5" line if you wanted to.
> > The hard part is predicting the likelyhood of various events. This proposal does nothing to address that problem.
> Actually, it does.
Actually it doesn't. As you wrote later
> Of course, you need your own predictions for the likelihood of various events,
That's the hard problem.
> It lets you, as a potential investor, plug in your own values to the model.
Right. It does nothing to help you figure out what those values should be. It merely tells you the consequences of whatever values you use.
Expressing how payout works as a python program does nothing to help you figure out whether 10% of the mortgages in a given portfolio will go into default. It only lets you compute the consequences of that event.