What is a weighted average rating factor?
Dear Average Factor of Average Evaluation is the calculation method and communication of the overall risk of the investment portfolio. It is most often associated with secured debt obligations. The weighted average evaluation factor takes into account each individual asset in the portfolio, but emphasizes the relative share of the portfolio created by each asset.
The main use of weighted average evaluation is with collateralized debt liabilities. These are financial products where the rights to income from more loans and credit shops were purchased and packed. Investors then buy bonds in CDO, while installments and interest on bonds eventually come from the income of the original loans. There are two main advantages: binding multiple loans together limits damage caused by the default individual; and bonds can be issued so that investors can choose a specific balance between obtaining a more avid interest rate or have a priority claim if the default values mean that there is not enoughmoney to pay all bond holders. The weighted average evaluation factor is a relatively simple way to achieve this. This includes first assignment to each individual asset: in fact an attempt to predict the statistical probability of the default debtor.
These risk factor data are then diagnosed by weighing. This means adjusting the data to match the proportions that each asset contributes to the overall portfolio. As an extremely simplified example, if 60% of the portfolio consists of mortgage and 40% of mortgage income, then the overall risk factor is simply a risk factor for mortgage and Multiplied by 0.4, plus the risk factor of mortgage B multiplied by 0.6.
Exactly what is the ultimate weighted average evaluation of the evaluation of factor may vary depending on who produces the evaluation. One system, operated by a ratingoVou Moodys uses a rating that makes the score of 100 a 1% chance of default settings in 10 years, the score of 150 represents 1.5% chance, etc. Investors should check carefully to determine exactly what the system is used, especially when comparing investment capabilities from different providers.