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In the press > September 2003

Login-Acumen "Credit Derivatives"

Credit Default Swaps are fully managed in ACUMEN. With release 5.10 issued end 2002, LOGIN provides a fully integrated framework for the calibration, input, valuation and back-office management of the main credit derivative products traded on the market.

The input of the credit protection is done through a specific mask allowing to indicate credit events, obligor rating, fee paid, etc, with automatic portfolio allocation. Standard ACUMEN event driven technology drives the deal directly towards the risk management, position keeping, and back office modules.

The Jarrow-Turnbull model is derived to find default probabilities based on discount factors and recovery rates. This widely used model provides expected cash flows conditional on no default. Apart from credit derivatives pricing, we have developed further this model to provide credit spreads per risk category and maturity. A matrix makes it easy to see where is the greatest risk premium. The matrix can also be used to price deals based on market credit spreads.

Risk is calculated both on yield curve changes as well as rating changes. Reports showing recovery levels, industry/sector, and other specific information are user definable. Credit risk analysis integrates the impact of credit derivatives on credit lines, with a clear and real time view of the credit risk mitigation effect across portfolios.

Operational risk is controlled through Back Office integration with deal checking, printing tickets and ISDA confirmations, monitoring paid or received premiums, accrual amounts, credit events, etc. All in the same system !