The originate-and-distribute model offered a means for banks to offload credit risk from their balance sheets and distribute it to investors. But Andrew Haldane and Lewis Webber of the Bank of England argue this risk was often passed on to those least...
Leveraged super-senior (LSS) trades represent a mechanism for packaging senior credit risk. Many LSS structures have been issued to date and yet there seems to be no formal pricing approach. In this article, Jon Gregory discusses the valuation of LSS...
Banks, investors and rating agencies are bracing themselves for a barrage of new regulatory guidance, consultation papers and capital charges in the wake of a report by the Financial Stability Forum (FSF) on April 12, which made a series of recommendations...
As regulators clamp down on securitised products, leveraged investors are racing to new markets. JP Morgan analysts say the crisis might be shifting leverage from structured products to emerging markets.
Investment banks could be getting rid of unsaleable high-risk loans by using them as collateral to borrow funds from the Federal Reserve through the primary dealer credit facility (PDCF).
Auction rate securities
Computations of implied copulas are a central element in producing loss distributions of bespoke portfolios and pricing their tranches. This process is made feasible by the availability of index tranche pricing data. Luigi Vacca shows how it is possible...
Counterparty Credit Risk
Charles Smithson and Neil Pearson discuss the valuation of collateralised debt obligations (CDOs). Following on from their December 2007 article, which focused on CDOs referenced to corporate credits, the authors turn their attention to CDOs of asset-backed...
American International Group's (AIG) writedowns on its US subprime exposure were more than triple the original estimate, it emerged yesterday.
Collateralised loan obligations
Credit default swaps (CDSs) are an integral tool used for the management of credit risk by financial institutions. Despite their importance, good models for the determination of CDS spreads, also called corporate credit spreads, are not readily available....
Stewart Inglis and Alex Lipton describe dynamic and static factor models for credit correlation, and show how the static model can be calibrated to the market and used for the pricing of standard and bespoke tranches, including tranchelets
Constraining buy-side institutions to hold only investment-grade securities uses a nearly century-old metric with limited contemporary relevance. David Rowe supports one modest proposed reform