From ELaR to DyLaR

Extending from our ELaR platform for predicting cash flows into the future we arrive
at the point of needing to consider new business, such business being classified as
all activities forward of cob as previously defined. In looking at the dynamic component,
we are now based at a portfolio level, since it is not possible to predict new
business on an individual transaction basis. Previously we saw that:
DCLóECLòdynamic cash flows (15.34)
At this stage we encounter the same problem as before, the forecast value of cash
flows, which now incorporates new business as well as existing, has an uncertain
path. The inescapable reality is that all models based on financial markets operate
in an often chaotic manner. That is, small parameter movements can lead to
previously unrecognized paths. Allowing for this is a development of our concept of
ELaR to bring us to Dynamic Liquidity at Risk (DyLaR).
In a broad sense, the behavioral model is one possible representation of DCL. In
which case DCL hasn’t been analysed by its individual components (ECL and new
business) as it would be ideally. Instead it is treated as an ongoing whole based on
the trends and periodicity of a given portfolio.