MWSA News

Wall Street Analytics, Incorporated, a creator of software tools and products for the specialised segment of the fixed-income market known as structured finance, announced today that it has launched an advanced valuation and risk management package for Collateral Debt Obligations based on Monte Carlo default simulation.

The Monte Carlo simulation package is available through CDOnet, a comprehensive desktop application used by investors, asset managers, underwriters and trustees to structure, manage and analyse CLOs, Synthetic CDOs and ABS CDOs. CDOnet interfaces with Wall Street Analytics' CDO library and CDOcalc.com, a subscription-based service that provides CDO information and a broad array of analytic tools and valuation options.

CDO market participants are well aware that performance of CDO tranches is greatly affected by the correlation of securities in the collateral pool, as well as individual default probabilities, expected recovery rates and recovery delays, prepayment propensity, sensitivity to interest rates and exchange rates, and the structure of the deal. Wall Street Analytics' Monte Carlo simulation engine incorporates all of these factors to dynamically generate collateral cash flows that are then distributed to CDO tranches according to deal-specific payment rules. In the simulation, thousands of individual scenario runs converge to provide more accurate valuation and risk measurements of CDO tranches than could have been attained using more traditional techniques.

CDOs are backed by a few hundred assets or less. Because each asset is a larger percentage of the collateral pool, the traditional method of applying default rates to a large collateral pool is not as effective. Monte-Carlo default simulations allow users to run thousands of stochastic trial scenarios whilst taking into account asset correlations in the pool backing the CDO, together with the default probability of each asset. This allows for a much more accurate tool for the valuation and risk management of CDOs.

CDOnet now offers the Monte Carlo simulation package alongside its powerful waterfall tool, providing a full cash flow analysis of the CDO capital structure under each scenario.

Jacob Grotta, Vice President of Wall Street Analytics said "Our ability to add this feature to CDOnet and couple it with our extensive deal library provides our clients with a unique ability to accurately analyse their CDO portfolios"

Wall Street Analytics is a worldwide leader for providing sophisticated software products to the structured finance markets. The company provides products and support to more than 100 clients around the world including leading asset management firms, investment banks, trustees, and institutional investors. Its CDOnet, CDOcalc, Structured Finance Workstation, Bond Administration Workstation and Portfolio Management Workstation products are widely recognised for their unique abilities to support detailed analysis of the most sophisticated structured debt products including, collateralised debt obligations (CDOs), mortgage-backed securities (MBS) and asset-backed securities (ABS). Founded in 1987, the company serves the markets from its three main locations in New York, San Francisco and London. For more information, interested parties can visit the company's website at www.wsainc.com