Mark-to-market volatility on single tranche CDOs has become a key factor in determining whether to enter a trade. Jay Merves, senior v.p. at ACE Guaranty Corp., said recent accounting changes mean positions need to be marked-to-market on a quarterly basis and this has led to protection sellers running volatility models in addition to evaluating the credit risk of deals. If two structures represent similar credit risks, protection sellers will opt for the deal with less mark-to-market volatility.
Protection Sellers Focus On Mark-To-Market Vol, Says ACE
