Two new credit derivatives valuation models were launched last month, an illustration of the challenge investors face in accurately pricing the risk embedded in these instruments. But the two platforms approach the market in contrasting ways and are targeting very different types of investors. Rating agency Fitch Ratings has launched Risk Analytics Platform for Credit Derivatives (RAP CD), which aims to drive transparency in market risk for single-tranche synthetic CDOs. Data provider Markit Group is using its proprietary data to provide independent portfolio valuations across a range of vanilla and exotic OTC derivative instruments.
Kim Slawek, group managing director at Fitch Ratings, describes its new product as a natural evolution for the rating agency. But it marks a significant departure in that it focuses on market risk, not credit risk. “Mark-to-market risk and understanding volatility are the biggest barriers to investing in synthetic CDOs,” she says. “We want to bring...
