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Some characteristics of an equity security next-year impairment

Author

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  • Pierre-Emmanuel Thérond

    (LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

Abstract

In this paper, we propose some characteristics of next-year impairments in a generic Black & Scholes framework, with one equity security, and under IFRS rules. We derive expression for the probability of impairment event for an equity-security recognized in the available-for-sale (AFS) category. Our decomposition of this event is also useful to retrieve barrier options valuation methods. From there, we obtain an explicit formula for the rst moment of impairment value and its cumulative distribution function, as well as sensitivities. Numerical studies are carried out on concrete securities. We also study a mean-preserving one-criterion proxy used by some insurance practitioners for the next-year impairment losses and discuss its relevance. More generally, our study paves the way for applications of nancial mathematics techniques to accounting issues related to impairments in the IFRS framework.

Suggested Citation

  • Pierre-Emmanuel Thérond, 2014. "Some characteristics of an equity security next-year impairment," Post-Print hal-01152099, HAL.
    • Handle: RePEc:hal:journl:hal-01152099
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    1. is not listed on IDEAS
    2. Diana Dorobantu & Yahia Salhi & Pierre-E. Thérond, 2020. "Modelling Net Carrying Amount of Shares for Market Consistent Valuation of Life Insurance Liabilities," Methodology and Computing in Applied Probability, Springer, vol. 22(2), pages 711-745, June.
    3. Diana Dorobantu & Yahia Salhi & Pierre-Emmanuel Thérond, 2018. "Modelling net carrying amount of shares for market consistent valuation of life insurance liabilities," Working Papers hal-01840057, HAL.
    4. Achim Luminita-Georgiana & Mitoi Elena & Turlea Ioan-Codrut, 2021. "A methodological approach to developing and validating IFRS 9 -LGD parameters," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 15(1), pages 683-694, December.
    5. Pierre-Emmanuel Thérond, 2014. "Alarm System for Credit Losses Impairment under IFRS 9," Post-Print hal-01152097, HAL.

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