193 paragraphs found
Models may be used to value financial instruments when the price cannot be directly observed in the market. Models can be as simple as a commonly used bond pricing formula or involve complex, specifically developed software tools to value financial …
Models comprise a methodology, assumptions and data. The methodology describes rules or principles governing the relationship between the variables in the valuation. Assumptions include estimates of uncertain variables which are used in the model. Data …
Depending on the circumstances, matters that the entity may address when establishing or validating a model for a financial instrument include whether: The model is validated prior to usage, with periodic reviews to ensure it is still suitable for its …
The following describes how models may be applied to value a common financial instrument, known as an asset backed security. [9] Because asset backed securities are often valued based on level 2 or 3 inputs, they are frequently valued using models and …
The cash flows of an asset backed security may be affected by prepayments of the underlying collateral and by potential default risk and resulting estimated loss severities. Prepayment assumptions, if applicable, are generally based on evaluating market …
Entities may use third-party pricing sources in order to obtain fair value information. The preparation of an entity’s financial statements, including the valuation of financial instruments and the preparation of financial statement disclosures relating …
Third-party pricing sources may also be used because the volume of securities to price over a short timeframe may not be possible by the entity. This is often the case for traded investment funds that must determine a net asset value each day. In other …
For one or more of these reasons most entities use third-party pricing sources when valuing securities either as a primary source or as a source of corroboration for their own valuations. Third-party pricing sources generally fall into the following …
Pricing services provide entities with prices and price-related data for a variety of financial instruments, often performing daily valuations of large numbers of financial instruments. These valuations may be made by collecting market data and prices …
Pricing services often have a formalised process for customers to challenge the prices received from the pricing services. These challenge processes usually require the customer to provide evidence to support an alternative price, with challenges …