CDO pricing system launched

Quantifi, a provider of analytics and risk management solutions, is offering an enhanced base correlation calibration in the latest release of Quantifi XL that could help solve collateralised debt obligation (CDO) correlation calibration problems.

CDO base correlation calibration is difficult for some parts of the capital structure. For example, the 15%-30% tranche on the Investment Grade CDX index has occasionally traded at levels that will not calibrate using common CDO pricing techniques.

Quantifi believes it has found a “reasonable solution for base correlation calibration for this market”, according to Rohan Douglas, CEO of Quantifi. The company has been working closely with clients to “implement a number of techniques which guarantee robust and fast calibration in a way that is consistent with current market best practice and do not rely on arbitrarily adjusting model assumptions such as recovery rates,” said Douglas.

The model offered by Quantifi includes top down or inverted calibration techniques, extended factors that expand the range of market quotes that can be calibrated and numerical techniques that speed up and stabilise calibration at high correlations.