Credit fundamentals, ratings and value-at-risk: CDOs versus corporate exposures

Ingo Fender, Nikola Tarashev () and Haibin Zhu

BIS Quarterly Review, 2008

Abstract: This article compares the linkages between credit fundamentals, ratings and value-at-risk measures for CDO tranches with those for corporate bond exposures. A sensitivity analysis incorporating market information and rating migrations data reveals that the behaviour of CDO tranche ratings can differ markedly from that of corporate ratings. In addition, tranching is found to have an important impact on the probability of large losses. This highlights how investors who narrowly focus on ratings and draw direct parallels with corporate exposures can seriously misjudge the value-at-risk of CDOs.

JEL-codes: G24 G32 (search for similar items in EconPapers)
Date: 2008
References: View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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