RiskMetrics adds structured credit application to RiskManager
13 December 2007 | 1701 views | 0
Source: RiskMetrics Group
RiskMetrics Group, a leading provider of risk management and corporate governance services to the global financial community, today launched a new Structured Credit Solution embedded in its flagship product RiskManager.
Investors can use the turnkey solution to measure the risk of advanced structured credit trading strategies, such as correlation trades and basis trades. The solution is designed for hedge funds and banks trading credit strategies, prime brokers calculating risk-based margin on structured credit trades, and asset managers investing in synthetic credit products.
Many investors have built significant positions in structured credit instruments, but risk management of these trading strategies is very challenging. Lessons learned through the correlation breakdown of spring 2005 and credit crisis of 2007 demonstrate that proper risk management of structured credit must incorporate measures of systemic credit risk, concentration risk, idiosyncratic risk, and correlation risk. RiskMetrics Group's Structured Credit Solution allows investors to estimate sensitivities, design stress scenarios, and calculate statistical measures of downside risk through historical and Monte Carlo simulation.
"Given the recent volatility of the credit markets, increasing numbers of investors are demanding proven risk management solutions to properly measure the various sources of risk in structured credit trades," said Jorge Mina, Co- Head of RiskMetrics Group's Risk Management Business. "RiskMetrics Group's Structured Credit Solution covers a wide-range of structured credit instruments making it easier for investors to understand the risk exposures across their entire portfolio."
The Structured Credit Solution accurately measures basis risk of portfolios containing credit default swap (CDS) indices that are also hedged with single name CDS by providing on-the-run basis time series to accurately capture the subtle differences in those markets. To facilitate loading client portfolios, index constituents are automatically mapped for CDS indices and standard tranches. Investors trading bespoke tranches can define their own baskets and attachment and detachment points to accurately measure sensitivities and risk due to spread changes, defaults, and correlations.