
Fitch to introduce synthetic CDO market risk valuation service
Deutsche Bank’s dismissal of credit derivatives trader Anshul Rustagi in January for overstating his book by £30 million and the correlation crisis of May 2005, when the equity/mezzanine tranche correlation pricing dislocation caused traders many sleepless nights following the downgrading of General Motors and Ford, have put the spotlight on market risk issues in structured credit.
"The big challenge in pricing CDOs is where you're getting your correlation numbers from. All investment banks have numerous pricing models for CDOs and hold different views on what the best methodology should be," continued Slawek. For example, two banks that use different implied correlations but identical methodologies will obtain a very different price. Different sources for underlying CDS spreads can also result in significant discrepancies in pricing.
Slawek added that the service will give investors a 10 page analysis of the underlying market drivers of a price change, seeking to look in greater depth at how and why spreads and correlation figures have affected the price. "The aim is to create transparency behind price changes, which is not something that investors get today," she said.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Credit derivatives
Single-name CDS trading bounces back
Volumes are up as Covid-driven support fuels opportunity for traders and investors
Podcast: Richard Martin on improving credit migration models
Star quant proposes a new model for predicting changes in bond ratings
CME to pass on Ice CDS administration charges
Clearing house to hike CDS index trade fees from July after Ice’s determinations committee takeover
Buy side fuels boom in single-name CDS clearing
Ice single-name CDS volumes double year on year following switch to semi-annual rolls
Ice to clear single-name bank CDSs from April 10
US participants will be able to start clearing CDSs referencing Ice clearing members
iHeart CDS saga sparks debate over credit rules
Trigger decision highlights product's weaknesses, warns Milbank’s Williams
TLAC-driven CDS index change tipped for September
UK and Swiss bank Holdco CDSs likely inclusions in next iTraxx index roll, say strategists
Fears that bumper coupon could skew iHeart CDS payouts
Market pushes for change to auction date amid fears of reduced single-name and index CDS payouts