Post by Sapphire Capital on Feb 17, 2009 20:49:20 GMT 4
Measuring the Credit Risk of Synthetic CDOs with CDS-Implied Ratings
David T. Hamilton
Moody's Analytics
ViewPoints, February 2009
Abstract:
In this paper, we demonstrate how CDS-implied ratings for corporate reference names, together with an analytic CDO ratings model, can be used to derive CDS-implied tranche ratings for corporate synthetic CDOs (CSOs). It is an experiment in which we change one key variable, the ratings of the portfolio of reference entities, while holding other data and model assumptions constant and measure how tranche ratings perform. We find that CDS-implied tranche ratings lead changes in Moody's ratings, more accurately rank order default losses by rating, and exhibit higher loss prediction accuracy ratios for the riskiest tranches.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1340485_code282731.pdf?abstractid=1337629&mirid=1
David T. Hamilton
Moody's Analytics
ViewPoints, February 2009
Abstract:
In this paper, we demonstrate how CDS-implied ratings for corporate reference names, together with an analytic CDO ratings model, can be used to derive CDS-implied tranche ratings for corporate synthetic CDOs (CSOs). It is an experiment in which we change one key variable, the ratings of the portfolio of reference entities, while holding other data and model assumptions constant and measure how tranche ratings perform. We find that CDS-implied tranche ratings lead changes in Moody's ratings, more accurately rank order default losses by rating, and exhibit higher loss prediction accuracy ratios for the riskiest tranches.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1340485_code282731.pdf?abstractid=1337629&mirid=1