Credit Product

• Credit Derivatives

The credit default simulator is based on a simplified version credit risk methodology, extended to multiple periods. Beginning with a portfolio of assets, which are assumed to be in one-to-one correspondence with names, the model simulates a change in the value of the name for each period.

• Credit Simulation

The Insurance and Pension Solutions Group (IPS) stable value fund wrap model is presented. The modeling approach is to be used for several two basic contract types involving stable value protection on Bank Owned Life Insurance funds (BOLI), and Company Owned Life Insurance funds (COLI). These products are fundamentally the same but differ with respect to tax treatment and/or the specific details regarding the redemption of the funds or portions thereof.

• Stable Model

The purpose of the submitted model is to calculate the risk measures for FirstNofM trade (FNM) trades and CDO2&3 trades. They are bucketed credit spread sensitivities for FNM trades; bucketed credit spread sensitivities for CDO2&3 trades; default sensitivities and correlation sensitivities for CDO2&3 trades.

• CDO Risk Measure

A variable maturity GiantFirstLoss trade has a non-vanilla collateral debt obligation (CDO) structure, in which the maturities of the obligors in the underlying collateral pool can be different from the trade maturity.

• First Loss

An upgraded version of variable maturity synthetic CDO (VMS-CDO) trade valuation is presented. A VMS-CDO trade has a non-vanilla structure, in which the maturities of the underlying obligors could be different from that of the CDO trade.

• Variable CDO

The loss trigger leveraged super senior tranche (LT-LSS) valuation model is presented. A leveraged super senior tranche trade is a credit linked note, which provides investors with a leveraged exposure to the super senior tranche in a synthetic CDO transaction. The note holder earns the risk premium associated with selling protection on the entire senior exposure when the protection it provides is limited to only the funded principal amount which is just a fraction of the entire exposure.

• loss Trigger

The Mapping model serves the purpose of finding implied base correlations for a bespoke CDO trade from market quoted standard CDO indices Dow Jones CDX and iTraxx Europe. In this report, a CDO tranche is defined as bespoke if its reference portfolio composition is different from that of CDO indices.

• Correlation Mapping

A calibration procedures of the Default Correlation model is presented. There are two principal modifications. The first is to change the manner in which asset correlations are converted into default correlations, the second is a small change in the algorithm by which the probability equations of the model are solved. These changes are considered appropriate, and are necessary for the model to be considered robust enough to underpin the structuring and trading of complex credit contingent instruments.

• Credit Pricing Model

The forward starting CDO (FSCDO) valuation model serves the purpose of pricing a forward starting CDO (FSCDO) tranche. An FSCDO trade is defined as an agreement to enter into a CDO trade at some time in the future. Unlike a usual forward starting instrument in the interest rate world, the obligors in the collateral pool of the FSCDO may default before the forward starting date, which makes the pricing of such trades complicated. Furthermore, the FSCDO involves the forward start date and the trade maturity

• Forward Starting CDO