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Derivative Fitch Upgrades Platform for Credit Derivatives

Derivative Fitch, the credit derivatives rating agency, has launched a new version of its Risk Analytics Platform for Credit Derivatives (RAP CD) with daily mark-to-market pricing and risk analysis and full support for CDO2 structures.

The new version also includes the addition of portfolio reporting and an improved graphical interface. Portfolio reporting offers the ability to evaluate the risk of a single name to an entire portfolio of synthetic CDOs.

“We recognise that in today’s market investors sometimes have a basic model for vanilla synthetic CDOs. However, investors rarely have models for more exotic deals, even though it is often these deals that are more frequently traded. Their challenge now involves being able to analyse all market risk exposures for all deal types, including the more exotic ones, on a portfolio basis,” says James Wood, managing director at Derivative Fitch and co-head of RAP CD.

“Derivative Fitch is therefore addressing the market’s need for transparency through a series of releases with future versions to include support for variable subordination, long/short CDOs, zero coupon CDOs, CPPI and CPDO.” Wood says the company will have coverage of many of these products in its next release slated for March 2007.

The analytics in the new platform include two models from Reoch Credit, whose credit derivatives analytics business was acquired by Derivative Fitch in July 2006. The first approach uses the “supertranche” method in which a CDO2 is treated as a closest equivalent CDO. The second model explicitly takes into consideration the base correlation skew of each inner CDO tranche and also that of the outer CDO tranche.

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