Correlation

Correlation means the relationship between two or more variables. In the credit market, it refers to default correlation; i.e. the probability of default of one reference entity or instrument in relation to another or others. The calculation of implied correlation in a credit portfolio requires complex mathematical modelling. However, the market-based pricing of standardised index tranches enables the derivation and trading of implied correlation on those tranches. Tranches are portfolios of credit risk demarcated through a given attachment point (the minimum level of losses to which a tranche is exposed) and a detachment point (the maximum level of losses to which it is exposed) on a broader credit portfolio and are known as equity tranches, mezzanine tranches and senior tranches. On the indices, tranches are traded with standardised attachment and detachment points.

• SCI Start the Week - 28 October

  A review of securitisation activity over the past seven days

  Transaction of the week Fannie Mae has priced its first credit risk transfer transaction referencin...

  News    28 October 2019

• Correlation evolution

  Tranche trading continues to gain traction

  Bespoke and index tranche trading volumes have been increasing for the last few years, supported by...

  News Analysis    23 October 2019

• Problem solving

  Credit derivative hedges mooted in a deteriorating environment

  The end of the credit cycle and fears over global geopolitical and natural events are driving Europe...

  News Analysis    3 October 2019

• Market moves update

  Sector developments and company hires in structured finance

  Moody's has downgraded the ratings of  123 tranches, placed on review for upgrade t...

  Market moves    26 October 2018

• Correlation trader resurfaces

  Orchard Global Asset Management has hired Ahmed Triki as a senior trader. He was most recently an md...

  Job Swaps    22 October 2015

• Cross-asset conviction

  Renaud Champion, head of credit strategies for La Française Global Investment Solutions, an...

  Q: How and when did La Française Global Investment Solutions (LFGIS) become involved in the...

  The Structured Credit Interview    12 October 2015

• CDS manager tapped

  La Française Global Investment Solutions (GIS) has appointed Michael Hattab-Maruan...

  Job Swaps    24 September 2015

• CLO commodity exposure 'negative'

  US CLO 2.0s' exposure to oil and gas and to metals and mining increased slightly in 1H15, w...

  News Round-up    3 September 2015

• US housing demand shifts

  A return of significant housing demand in US city centres is elevating into a coun...

  News Round-up    13 August 2015

• Private debt hedge fund launched

  Rob Allard and Jonathan Egol, both former mds at Goldman Sachs, have launched a dedicated private de...

  Job Swaps    17 June 2015

• Made to measure

  Tranche investment patterns changing

  The end of 2014 was also something of an end of an era for the credit derivatives markets, as the CD...

  News Analysis    27 January 2015

• Crossover tranche trades touted

  Markit iTraxx Crossover tranches are set to begin trading on 20 October. Markit will support four tr...

  News Round-up    14 October 2014

• Tranche market transitioning

  The European credit index tranche market is transitioning from being dominated by legacy positions t...

  News    18 June 2014

• Status quo?

  Credit derivative reforms only a 'partial solution'

  The adoption of central clearing and trade repositories has increased transparency and liquidity acr...

  News Analysis    7 February 2014

• Idiosyncratic risk to boost CDS volume

  The credit derivatives market is entering 2014 amid a regulation-induced transformation. While capit...

  News    12 December 2013

• RFC issued on CSO update

  Moody's is seeking comments from market participants on proposed changes to its rating approach for...

  News Round-up    19 August 2013

• Confidence boost

  Will bespoke single tranches make a comeback, asks Anu Munshi, partner at B&B Structured Fin...

  Last month, JPMorgan and Morgan Stanley scrapped plans to launch a synthetic CDO. Apparently there w...

  Talking Point    24 July 2013

• Tranche repositioning recommended

  The strong rally in MBIA credit risk in the aftermath of the company's legacy exposure settlements i...

  News    31 May 2013

• Capital raising mandate signed

  Credit hedge fund manager Varden Pacific has mandated alternative assets placement agent MCAM Group...

  News Round-up    3 May 2013

• Athilon upgraded

  S&P has raised the issuer credit rating (ICR) on the Athilon CDPC to triple-B plus from doub...

  News Round-up    4 April 2013

• Transition time

  CDS product development and growth anticipated

  Next year will be a watershed for credit derivatives, as the market is scheduled to transition to a...

  News Analysis    19 December 2012