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ASK YOUR FINANCIAL PLANNER Consult with your f inancial planner. Many brokerage and f inancial services f irms now offer mortgages, and a host of other lending options, notes Louis B. Chapman, Esq., in Wayne, New Jersey. They can help you use margin lines, harvest tax gains and losses from your portfolio, restructure insurance payments, and other creative techniques. BORROW FROM YOUR WHOLE-LIFE INSURANCE You may have access to money you re not even aware of. Perhaps you own whole-life insurance policies. These are life insurance contracts that have a savings account a cash value. (They are also called permanent insurance.) If you have owned any of them for several years, you may have a few thousand dollars built up. If your parents bought whole-life insurance for you long ago, you might have even more. You can borrow the cash value automatically. It s supposedly your money, and most insurance companies have no option: They must lend you the money. The interest rate you will be charged may be low, depending on how long the policy has been in effect. You might pay 8 percent interest or even 5 percent, if you have an old policy.



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amount of investment funds that can be allocated to any one category, where category might be a part of the world, a particular country, or a specific company. While the map might be excessive for some investors, it could be woefully incomplete for others. For example, GE is a large company. Does the credit officer of a large bank limit investments to GE businesses with GE taken as a whole, or does she recognize that GE is made up of many diversified businesses that deserve to be given separate industry-specific risk allocations Perhaps she creates a combination of the two different approaches and evaluates situations on more of a case-by-case basis. As shown in Figure 5.22, the first layer of a top/down capital allocation process may be by part of the world, followed by country, and so on. At each successive step lower, the amount of capital available diminishes. Since Japan is not the only country in Asia, and since a company is unlikely to put all of its Asian-designated capital into just Japan, the amount of capital allocated to Japan will be something less than the amount of capital allocated to Asia generally. Similarly, since automotives is not the only industry in Japan, the amount of capital allocated to automotives will be something less than the amount of capital allocated to Japan, and so on. Clearly, the credit risk allocation methodology that is ultimately selected by any investor will be greatly dependent on investment objectives, capital base, and financial resources. While there is no single right way of doing it, just as there is no single right way of investing, at least there are well-recognized quantitative and qualitative measures of credit risk that can be tailored to appropriate and meaningful applications.

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Example: Pricing a Multi-Period CDS with a Risky Counterparty Let s look again at the three-year credit default swap on Company X s bond. Previously, we found that if the counterparty (i.e., protection seller) is risk free, the price would be 43 basis points per annum. Let s now suppose that the protection seller is subject to default risk. Indeed, let s think about two potential sellers of protection on Company X: The lower-risk protection seller has a credit spread (over Treasuries) of 45 basis points; and the higher-risk protection seller has a credit spread of 65 basis points. Clearly, the buyer of the credit protection will pay less for the three-year protection to the higher-risk seller than they would to the lower-risk seller. The question is how much and the answer to this question depends on the correlation of default between Company X and the protection seller. The following table provides the prices for credit default swaps for both of the protection sellers, considering different correlations of default between Company X and the protection seller. Lower Risk Protection Seller 42 bps 40 bps 38 bps Higher Risk Protection Seller 39 bps 37 bps 35 bps

, 1989), a new approach focuses on factors that account for weight regain after successfully losing weight (Cooper & Fairburn, 2001; in press) According to this new cognitive-behavioural approach, patients with obesity who lose weight fail to maintain their gains for two reasons First, they do not achieve their weight loss goals, nor the anticipated bene ts of achieving them For example, the patient may anticipate feeling more con dent after losing 10 kg but either loses only 5 kg or does not feel any differently about his or her con dence As a consequence, efforts to lose weight are abandoned (Cooper & Fairburn, 2001).

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