Univariate pricing is a key component to the pricing of structured credit vehicles. To date, credit is still very much an incomplete market. In addition, it is usually difficult to use a simple diffusion setup to model its dynamic, as default risk is usually perceived as an unexpected event, i.e., a jump. An incomplete market and the presence of jumps make the credit space a difficult market, where it is not always easy to derive prices from the cost of related replicating (hedging) strategies/portfolios.
Due to these characteristics, market participants have been trying hard to make the most of two alternatives:
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Posted in Finance, Loan
Acredit rating represents the agency’s opinion about the creditworthiness of an obligor, with respect to a particular debt security or other financial obligation (issue-specific credit ratings). It also applies to an issuer’s general creditworthiness (issuer credit ratings).
There are generally two types of assessment corresponding to different financial instruments: long-term and short-term ones. One should stress that ratings from various agencies do not convey the same information. S&P perceives its ratings primarily as an opinion on the likelihood of default of an issuer,* while Moody’s ratings tend to reflect the agency’s opinion on the expected loss (probability of default times loss severity) on a facility.
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Posted in Strategy
The structured finance market is related to quantify its new issuance volume. The volume itself, has been rapidly climbing all over the world, and U.S. leading it, followed closely by Europe, Australia and Japan as the competitor from Asia. Based on those fact, creating new atmosphere of market finance, and currently the rest countries is shocked by the awakening to the opportunities offered by structured credit products to both issuers and investors and gearing up for a strong future growth.
In that respect, it is worth mentioning Mexico, which is leading the way in Latin America; South Korea and Republic of China lead in continental Asia and Turkey in for the Middle East and Eastern Europe. It is only a matter of time before Central and Eastern Europe and China and India spring into action, and the Middle East launches its own version of securitization.
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Posted in Finance