Investors are increasingly tapping independent credit derivative pricing tools. "We need more transparency," said one buyside official, who noted the attraction of these sorts of pricing tools is their separation from the credit houses pitching the products. The buysider said there is particular interest in pricing collateralized debt obligation tranches, options on CDOs and forward-starting CDOs.
Looking to tap into the demand, New York-based provider of credit derivatives pricing tools Quantifi Solutions is planning to open an office in London. It recently launched an alternative pricing model to the widely-used Gaussian Copula framework. Another player looking to get in to the market is Fitch Ratings which last month launched a market-risk pricing instrument.
Quantifi's Forward Loss model looks at individual default risks of credits in an underlying reference portfolio, rather than assuming default probability is equally weighted, said Rohan Douglas, Quantifi founder and former director of global credit derivatives research at Salomon Smith Barney. Further details of the group's London venture are not yet known because plans are in the early stages. Fitch's instrument, called RAP CD, allows users to analyze and price the market risk of synthetic collateralized debt obligations (DW, 3/17).
