Originally Posted by
myles
Good to see that the early claimed 50% error has waned to a more realistic value and that interest is forming part of the discussion :p
The biggest impact on return, for those in the higher risk grades, comes from defaults that are somewhat unpredictable. Using a more accurate calculation of returns early is pointless (in my opinion) when you start to factor in the 'hazard curve'. With only the data Harmoney provide (which we know is likely to be a bit off) a guesstimate of actual return is the best you can expect - and this is going to be influenced by what's happening out in the real world... Comparing RAR or XIRR (corrected or not), of one set of loans to another that are of a different age, is never going to be a fair comparison... Comparing two mature sets of loans would be 'more fair'...
I'd be interested, leesal, on how you will factor this into your wager - the full impact of a default isn't known until close to 1 year after it actually starts? Since those in your wager have started at different times, any comparison would be somewhat distorted as default rates vary over time and are influenced by the real world? The only accurate comparison would come when Outstanding Principal reaches zero and XIRR (or similar) is used on all in's and out's, but starting at different times has an impact even if the term is set the same?