The recent volatility in the credit markets has made CDO base correlation calibration difficult for many market participants. Quantifi, a provider of analytics and risk management solutions for the global credit markets, has recently released a set of enhancements that will help those struggling with CDO correlation calibration. Ceo and founder of Quantifi, Rohan Douglas explains…
What is this newly released enhancement?
The enhancement provides clients with a new set of models that incorporate new techniques and extended factors which makes base correlation calibration in these volatile market conditions faster and more accurate all while adhering to best market practice.
The newly released enhancement models include:
– Top down or inverted calibration techniques
– Extended factors which greatly expand the range of market quotes that
can be calibrated
– Numerical techniques that greatly speed up and stabilize calibration
at high correlations
Why did you think these enhancements were necessary?
It is a competitive market and market participants are looking for models and risk analysis that is competitive and on par with the models and approaches used in the large banks.
Clients tell us that we are unique in providing an infrastructure that is pretty much turn-key (easy to use)and we also match what large banks publish and what is best practice from a market perspective. In short, Quantifi provides our clients with an immediate competitive edge.
How have clients managed pre-enhancement?
Some clients have adopted an approach that includes adhoc adjustments to some of the model parameters, such as recovery rates.
The enhancements we have made are a much better solution because it provides a more consistent methodology which means you don’t have to make this arbitrary adjustment just to get a result.
Use of the enhanced models saves time and effort by providing a consistent method to modeling which replaces the constant need to make changes but also eliminates worry that the ‘tweak’ or adjustment might not work anyway.
You say Quantifi is the ‘first-to-market’ in offering these enhanced models to participants in the global credit markets. Why is this?
We have a unique level of experience in the market. I myself, have been in the credit markets for over 15 years, worked at many large banks and run global credit research group at Salomon Brothers and Citigroup In fact, all of Quantifi’s employees have a very high level of market experience which is difficult to replicate.
Also, we have a large, sophisticated client base that provides a lot of direct feedback about what is going on in the marketplace and helps us really drive our products forward, giving us a leading edge on innovation.
How is this enhancement offered? Do you have to already use the solution?
The new base calibration enhancements are offered via Quantifi XL, our pricing and dealing structuring solution for the credit markets.
All of our clients use Quantifi XL but many clients also rely on our risk management solution, Quantifi Risk, to automate all of their pricing and risk management functions. Clients also use Quantifi Analytic Service to integrate models into other systems, such as their proprietary trading platforms.
Our clients usually end up using many of our solutions.
What is the expected uptake for this modeling enhancement?
I expect most clients to take on the new enhancement because robust [base correlation] calibration has been a pervasive problem in the market. The fact that these models wouldn’t always calibrate is a big issue for our clients and anyone in the market.
So far, the client uptake of this enhancement and general interest has been pretty strong and I expect this to actually grow as people look in more detail, see it works well, and become more excited about it.
* For more information please refer to Quantifi’s web site at www.quantifisolutions.com
