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Securitisation deals have come to the fore during recent years owing to the
challenges involved in their assessment and their role in the recent credit crises.
These deals are created by the pooling of assets and the tranching of liabilities. The
latter is backed by collateral pools. Tranching makes it possible to create liabilities
of a variety of seniorities and risk-return profiles.
The assessment of a securitisation deal is based on qualitative and quantitative
evaluations of the risks inherent in the transaction and how well the structure
manages to mitigate these risks. Examples of risks related to the performance of a
transaction are credit risk, prepayment risk, market risk, liquidity risk, counterparty
risk, operational risk and legal risk.
In the light of the recent credit crisis, model risk and parameter uncertainty have
come into focus. Model risk refers to the fact that the outcome of the assessment of
a securitisation transaction can be influenced by the choice of model used to derive
defaults and prepayments. The uncertainties in the parameter values used as input
to these models add to the uncertainty of the output of the assessment. The rating
agencies have been encouraged to sharpen their methodologies, to disclose more
information about their methodologies and the underlying assumptions behind the
ratings, and to make known the sensitivity of the ratings to those assumptions.
It has also been voiced that financial institutions should reduce their mechanistic
reliance on credit rating agencies’ ratings and strengthen their internal credit risk
assessment. New regulatory requirements and amendments to existing regulations
on credit rating agencies have been implemented in both Europe and the United
States. |
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Welcome to the world of AutoCAD 2007! The program may be complex, but this friendly guide helps you navigate around all the complications and start creating... | | Mathematics and Music: A Diderot Mathematical ForumIn Western Civilization Mathematics and Music have a long and interesting history in common, with several interactions, traditionally associated with the name of Pythagoras but also with a significant number of other mathematicians, like Leibniz, for instance. Mathematical models can be found for almost all levels of musical activities from... |
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