CLO pricing model
Credit derivatives vendor Quantifi has produced a collateralised loan obligation model aimed at providing a more sophisticated approach to modelling than traditional scenario analysis.
The product models not just the debt or equity portion of the CLO, but the collateral pool as well. Quantifi believes this will help clients deconstruct complex structures, and identify how different risk factors affect the value of their portfolios.
This approach allows clients to impose Quantifi’s correlation models on a CLO’s collateral pool, enabling them to generate more realistic cashflows for both the underlying collateral and the tranches. The Monte Carlo simulation framework features several performance-enhancing technologies, including proprietary variance reduction techniques and tight integration with Quantifi’s parallel computing framework.
With the new model, Quantifi clients can now calculate credit sensitivities, interest rates, correlation and the likelihood of default for their CLO portfolios. Additionally, value distributions for each of the debt or equity tranches and the collateral pool can be computed. As these measures cannot be accurately estimated using traditional approaches, these calculations should give clients a better understanding of the dynamics of their portfolios, says Quantifi.
Quantifi CEO Rohan Douglas says: “With reduced liquidity, people needed to rely more on marking to model, but there weren’t a lot of models out there. CLO modelling has been a natural extension to our focus on credit.”
New Jersey-based Quantifi won a Technology Innovation Award last year for its correlated recovery CDO models.
The week on Risk.net, December 2–8, 2017Receive this by email