tranches

The Growth of Relative Value Credit Strategies

Thursday, June 24, 2021

by Quantifi

The use of relative value credit analytics is not new, but the importance of this methodology has come into sharper focus and has been the subject of increased investor attention over the last 12 months. There are two main reasons why relative value credit strategy has become a hot topic in the last year. The first is an extraordinary surge of issuance seen in bond market. The second is the extreme volatility within the credit sector in the face of COVID-19. Both these phenomena have created significant opportunities for realisation of value, and although, by the time of writing, the markets have calmed down considerably from the turbulence seen 12 months earlier, the party is not over yet.

A Consistent Approach to the Term Structure of Correlation

Thursday, February 27, 2020

Common market best practice for pricing off-the-run or bespoke collateralized debt obligation tranches involves mapping implied base correlation surfaces calibrated from actively traded tranches such as those on the CDX or iTraxx.

Over the last few years, research in this area has resulted in a constant stream of improvements and refinements of this process. The term structure approach for base correlation surfaces is an important incremental improvement over commonly used methods for dealing with the maturity dimension of base correlation surfaces.