New York-based Wall Street Analytics has launched a new risk management tool that willbe used for the valuation of collateralized debt obligations.
The product, dubbed Monte Carlo default simulation, is being offered through its CDOnetprogram.
The firm, which provides software to the fixed-income markets including both municipalsand corporates, launched the product in response to customer requests for a moreanalytical product, said president and chief executive officer Mark Ferraris.
The municipal industry is still looking forward to the launch of the first ratedmunicipal collateralized debt obligation. Jim Wiemken, director at Standard & Poor's,said there has been a lot of interest and discussion on CDOs with CDO managers, butnothing has surfaced. No municipal CDOs have been issued yet primarily because of issuesof how to find and structure an appropriate vehicle, which would allow the pass throughof the tax-exempt interest from the underlying collateral, according to Standard &Poor's.
However, the major monoline insurers - MBIA Inc., Ambac Assurance Corp., FinancialSecurity Assurance Inc., and XL Capital Assurance - all have significant exposure to thecorporate CDO market. MBIA has one of the most significant. Its exposure to CDOs inJanuary totaled $62.7 billion, representing 13% of its net insurance portfolio,according to Moody's Investors Service.
Wall Street Analytics' Monte Carlo package allows users to address certain problems thatare associated with valuing smaller portfolios, Ferraris said. Traditional valuationswould not take into consideration certain characteristics that have a much larger impacton smaller portfolios when they were being valued. The smaller the portfolio gets, themore effects one change in the underlying portfolio can have on the package. This newproduct takes that into consideration by allowing the assets to be examined on an asset-by-asset basis, he said.
Standard & Poor's also has a package that has been adapted to include corporate CDOs aswell as municipal CDOs, whenever the first is launched. That program, called the CDOEvaluator, is designed to look at the volatility and credit risk associated withdifferent portfolios. Moody's also uses a similar product called Moody's KMV CDOAnalyzer.
Wall Street Analytics' valuation package is offered through CDOnet, which is currentlyused by investors, asset managers, underwriters, and trustees to structure, manage, andanalyze collateralized loan obligations, collateralized bond obligations, syntheticCDOs, and asset-backed securities CDOs. CDOnet connects with Wall Street Analytics' CDOlibrary and CDOcalc.com, a subscription-based service that provides CDO information andother analytic and valuation tools.
Ferraris noted that if a municipal CDO is launched anytime soon, modifications may haveto be made to Wall Street Analytics' product, but it would be adaptable. He said thatpossibly other criteria, such as a state-level credit rating, may be mandatory and wouldbe added to the model.
Other companies with similar products include Waltham, Mass.-based Lewtan Technologies,which markets iCDO, and Needham, Mass.-based Intex Solutions Inc., which markets IntexCDO.
