Monday, December 27, 2004
MS' New Credit Derivs Model
Morgan Stanley releases credit derivatives model
Tue Dec 14, 2004 02:08 PM ET
NEW YORK, Dec 14 (Reuters) - Morgan Stanley (MWD.N: Quote, Profile, Research) has released a model that can be used to value portfolios of credit derivatives, in a move that could boost trading volume in the growing market and potentially increase the bank's credit trading profits.
The $5 trillion credit derivatives market, where investors can buy or sell insurance-like protection against a company defaulting on its debt, is increasingly driven by portfolio trades, where investors can buy or sell protection against a certain number of credits defaulting in a basket of credits.
The most frequently traded portfolios are the DJ CDX indexes, which began trading last year, of which there are about $150 billion of outstanding trades.
Morgan Stanley released its models to allow smaller players who may not have access to their own portfolio valuation models to participate in the market, said Lisa Watkinson, head of structured credit product management at Morgan Stanley in New York.
Bringing more investors into the market should boost trading volume, Watkinson said. That in turn can boost Morgan Stanley's trading profits.
Morgan Stanley's model, known as the Morgan Stanley Basket Pricing Model, allows investors to value portfolios of credit derivatives based on how much it costs to protect individual company's credits against default, and how correlated the credit quality of the companies tends to be.
The model is available on Bloomberg terminals.
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Tue Dec 14, 2004 02:08 PM ET
NEW YORK, Dec 14 (Reuters) - Morgan Stanley (MWD.N: Quote, Profile, Research) has released a model that can be used to value portfolios of credit derivatives, in a move that could boost trading volume in the growing market and potentially increase the bank's credit trading profits.
The $5 trillion credit derivatives market, where investors can buy or sell insurance-like protection against a company defaulting on its debt, is increasingly driven by portfolio trades, where investors can buy or sell protection against a certain number of credits defaulting in a basket of credits.
The most frequently traded portfolios are the DJ CDX indexes, which began trading last year, of which there are about $150 billion of outstanding trades.
Morgan Stanley released its models to allow smaller players who may not have access to their own portfolio valuation models to participate in the market, said Lisa Watkinson, head of structured credit product management at Morgan Stanley in New York.
Bringing more investors into the market should boost trading volume, Watkinson said. That in turn can boost Morgan Stanley's trading profits.
Morgan Stanley's model, known as the Morgan Stanley Basket Pricing Model, allows investors to value portfolios of credit derivatives based on how much it costs to protect individual company's credits against default, and how correlated the credit quality of the companies tends to be.
The model is available on Bloomberg terminals.
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# posted by Tom @ 9:57 PM 
