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To be a scientist...

Written by: Joseph L. Breeden, PhD | Posted on: | Category:

When the coronavirus was first discovered to be a looming pandemic, scientists did what scientists do. They guessed. They extrapolated. They tested. Guesses were based upon other viruses and other epidemics and pandemics. They extrapolated early trends and early data. They started running tests on every aspect of the virus, the human biological response, and the social aspects.

In the long run, scientists are always “wrong”, because science is a process of finding the boundaries and failures of current knowledge and adapting. The process of science is succeeding when flaws are found and boundaries are pushed. In this era of coronavirus, we are seeing the process of scientific discovery in real time.

Are face masks useful? Maybe. No. Yes, but don’t we don’t have enough good ones. Then finally, YES! Everyone! Now! Anyone who expressed a view in the past cannot be punished for stating what we thought we knew then. We did not have enough time to wait for a final answer. We have to do the best with what we know at each moment. (By the way, this is absolutely true of climate change, also.)

So, the mask debate seems pretty well settled. Wear a non-medical mask to protect others from yourself. It’s called civic duty or social responsibility or the optimal solution of an iterated prisoner’s dilemma type of problem. Choose your favorite paradigm.

The next bit of advice due for revision is the “six feet of separation”. That was based upon thinking that the virus is not airborne and would fall to the ground over six feet. (Actually, more like 12.) In fact, evidence has been mounting that the virus forms aerosols, meaning that it is airborne just like a flu virus. Reluctantly, the WHO admitted as much last week. Reluctantly, because the implications are unpleasant.

If the virus is airborne, then few of our old indoor spaces are safe. Yes, masks and plastic barriers and social distancing help, but the viral concentration will build in the air. What really matters is airflow. We need to accept that we need a hard rethink of all of our indoor spaces.

Summertime gives us a little breathing space. We can move (most) everything outdoors. Outdoor concerts, church, restaurants, bars, social gatherings, classrooms – yes, as long as people are still spread apart. An open-air setting reduces the concentration of the virus in the air you breathe as it diffuses in the atmosphere. To make an indoor space safe, we need to accomplish the same.

Some businesses are already reengineering their airflow. Most office spaces are designed around a push of air into the space, passive air return, and only coarse filtering. The office of the future will need fans pulling air from the space, strategically located above where people are most concentrated. That pulled air needs to go straight out or through medical grade filters before return.

Any space that cannot be fully reengineered will accumulate airborne virus. Then it’s a race against the clock. The more stale the air, the less time you want to spend there. That means an unimproved space can be used for pick-up service only. A partially improved space can be used for in-store shopping of limited duration, etc. In you want in-door bars, dining, schools, and church services, then circle the calendar month when it will be too cold for outdoor service and get busy renovating.

This is not a wasted effort when we finally have a coronavirus vaccine. We should have been considering the health aspects of indoor spaces long ago. We can lessen the cost of cold and flu season and reduce the risk of the next pandemic through the same investments. Healthy spaces make for healthy businesses, healthy consumers, and ultimately more economic growth. Why not include building renovation loans in the next stimulus package as a way of winterizing our economy?

While we're putting this constructive stimulus into the economy, we will keep learning more about how to manage, control, and ultimately defeat this virus and get a head start on the next one.

Software Delivery After running the scenario updates, the new scenarios were only slightly different from the previous ones. To avoid information overload, we have decided not to push these scenarios to our software users. Instead, we will wait two weeks for the early August data updates. We expect to see significant adjustments at that time. Please contact us if you have any questions or would like any custom scenarios.


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Recent Publications

All publications below were authored by DFA's own, Dr. Joseph Breeden

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    Sample Chart

    Reserves: All Loans vs. RE Loans


    CECL (Current Expected Credit Loss) is the new accounting standard for estimating loss reserves on loan portfolios. The CECL guidance provides a great amount of flexibility in which models are used and a range of other choices that may impact the calculations. This book provides details of a study on how to apply CECL to US mortgage data. It seeks to disclose as many modeling details, results, and validation tests as possible so as to provide a reference for comparison and best practices. Because CECL is so similar to IFRS 9 Stage 2, this can also serve as a benchmark for implementing the new international account standards. The book is organized into three parts. Part I: Study Summary provides an overview of CECL, the design of the mortgage study, and the key comparative results across the models tested. Part II: Model Details provides in-depth discussions of how the models were designed and estimated, the coefficients, and the validation. Part III: Background provides additional conceptual material. Chapters 11 and 12 may be particularly useful to those new to modeling, and Chapter 13 puts CECL modeling in the context of lending analytics overall.

    • Date // May 2018

    Sample Chart

    Vintage Performance


    Building on the solid foundation of the previous bestselling first impression, this extended updated impression walks through the various issues of retail lending and develops approaches to address the interaction between economic cycles and retail lending. The complexity of time is extensively explored: vintages, current time and maturity. Reinventing Retail Lending Analytics, Second Impression covers complex issues such as scenario based forecasting, stress testing, volatility analysis, economic capital and portfolio optimisation, credit scoring and last, but not least, model risk.

    The book ends by providing examples of the application of nonlinear decomposition. These examples will provide you with rich data sets for exploring portfolio dynamics and improving portfolio management using nonlinear decomposition techniques.

    • Date // March 2019

    Sample Page



    The new loan loss accounting rules for CECL and IFRS 9 require thousands of organizations to learn about modeling. Likewise, accountants and others in finance are now required to learn about statistical modeling concepts. This book is intended to define terms in a manner consistent with decades of academic literature on statistical modeling and hopefully reduce some of the noise and confusion just around definition of terms. It may also serve as a useful guide to analysts new to the field tasked with IFRS 9 compliance, the international loss accounting rules, and credit risk modeling in general.

    Each chapter of this book is a term that one might encounter when discussing creating lifetime loss forecasting models for CECL or IFRS 9. Not every term is a model, and some models listed are being mentioned only to explain why they are not likely to be used for loss forecasting. The CECL guidelines and subsequent FAQs have given examples of modeling techniques. Some people new to loss forecasting have assumed that those are all the available or applicable methods. This book is meant in
    part to dispel that misconception.

    The definitions and descriptions provided here are meant to provide an intuitive understanding across a range of modeling techniques. Mathematical derivations are kept to a minimum. The references listed will provide all the necessary details for an eager analyst.

    • Date // June 2018
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