The 2012 SCI Guide to Pricing & Valuation of Structured Finance Products:

This SCI Guide was published as a special issue to SCI in March 2012; each chapter is available to SCI readers free of charge. The author of each chapter has chosen a particular field of the markets to concentrate on:  

1. The use of CDS liquidity data in managing counterparty risk. As counterparty credit risk management and credit value adjustment (CVA) take an ever-more important role in the global banking sector, the use of CDS data is becoming increasingly formalised within financial institutions’ risk management processes. But with just one quarter of the CDS universe on which Fitch Solutions receives contributions that can be classified as liquid – and an even smaller percentage of entities traded regularly – the way in which CDS data is interpreted and the ability to price illiquid entities accurately is paramount. In this chapter, Catherine Downhill and Mark Lindup of Fitch Solutions examine the benefits of CDS liquidity data in managing counterparty risk and the challenges faced when pricing illiquid CDS entities. They also discuss the lessons learnt relating to CDS pricing techniques in the aftermath of the global credit crisis.

2. Risk management and structured product valuations – lessons learned from the financial crisis. The unprecedented write-downs in structured credit products exposed widespread weaknesses in risk management practices, governance and supporting analytics and a loose attitude towards the assessment of credit risk. We continue to learn lessons from the crisis. The focus of this paper is on improved risk management techniques and the evolution of supporting analytics for structured credit products, including residential mortgage-backed securities (RMBS), asset-backed securities (ABS), collateralised debt obligations (CDOs) and other bonds collateralised by mortgages, mortgage-backed securities or other consumer debt.

3. Sovereign default and re-denomination risk. The European sovereign debt crisis is continuing to heavily impact the financial markets, the structured finance sector included. In this chapter, Interactive Data’s director of EMEA valuations, Anthony Belcher, examines the impact of the crisis on the pricing and valuation of structured finance bonds, the practicalities of pricing securities in the event of a sovereign default or currency re-denomination.

4. Principia Structured Finance Perspectives
Over 100 structured finance investors responded to the latest Principia Partners survey into secondary market pricing methods in the ABS industry. Download this report to see what they are saying.

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 The use of CDS liquidity data in managing counterparty risk

 Risk management and structured product valuations – lessons learned from the financial crisis

 Sovereign default and re-denomination risk remain

 Principia Structured Finance Perspectives

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