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Complex credit made simple

Complex credit made simple

Source: SunGard

SunGard's Dan Travers looks at financial market motivation for a move to cross-asset, enterprise-wide, simulation-based modelling of credit risk.

The last five years has seen an enormous increase in focus on the subject of credit. This focus has ranged from the creation and use of credit-based derivatives, the role of credit rating agencies and the measurement, modelling and pricing of credit risk.

The collapse of the US sub-prime asset-backed securities market of 2007 and the ensuing credit crunch has significantly reduced the appetite for these credit-based instruments, particularly the more complex examples.

The longer term health of the market will depend on an emphasis of transparency over complexity and, on the trading side, more structural analysis to discriminate among CDO’s based on their actual underlying assets.

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