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Fitch Portfolio Credit Model |
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Fitch Ratings offers a suite of quantitative tools for evaluating default risk in credit portfolios backing collateralized debt obligations (CDOs). The models can be used for analyzing CDOs of corporate and asset-backed securities.
The Fitch Portfolio Credit Model, a Monte Carlo simulation model, simulates the default behaviour of individual assets in credit portfolio. It draws on a structural form methodology that holds that a firm defaults if the value of its assets falls below the value of its liabilities (also referred to as its default threshold). Monte Carlo simulation is a widely used tool in finance and allows the modeling of the distribution of portfolio defaults and losses, taking into account default probability and recovery rates as well as the correlation between assets in a portfolio.
The main outputs of this model are the rating default rate ("RDR"), rating loss rate ("RLR") and the rating recovery rate ("RRR") corresponding to each rating stress. The model outputs also include various portfolio statistics as well as a portfolio's default and loss distribution and the aggregate distribution of defaults over time. The Fitch Portfolio Credit Model is not a cash flow model and does not take into account structural features such as payment waterfalls or excess spread. The RDR, RRR and timing of defaults are inputs to be used in the cash flow model. For synthetic deals that do not benefit from structural support, the RLR shows the calculation of the minimum credit enhancement for each rating.
PCM Release Log:
- latest release Version No. 2.2.2 - Release Date: July 2010 The new release incorporates the updates to corporate criteria as described in the Criteria Report "Global Rating Criteria for Corporate CDOs", July 2010.
- Version No. 2.2.1 - Release Date: April 2010 The new release provides enhanced functionality including the following; (i) corporate SME portfolios are incorporated as a separate asset class rather than a module, which allows to analyse mixed portfolios of large corporates and smaller to medium sized corporates. (ii) portfolio files are saved in an XML format rather than excel (iii) additional functionality for corporate SMEs, including NACE industry codes, one year pd input and delinquency indicator.
- Version No. 2.1.7 - Release Date: July 2009 The new release includes the functionality for analysing granular portfolios of small and medium sized corporates (SMEs) as described in the Criteria Report "Rating Criteria for European Granular Corporate Balance Sheet Securitisations", July 2009.
- Version No. 2.1.4 - Release Date: April 2009 The new release includes the functionality for analysing granular portfolios of small and medium sized corporates (SMEs) as described in the Exposure Draft Report "European Rating Criteria for Granular Corporate Balance Sheet Securitisations (SME CLOs) ", April 2009. The SME module is a beta version for the duration of the exposure period. The new version also offers enhanced functionality including mutli threading architecture as well as additional utility functions. These are described in more detail in the model handbook. The new version is Fitchs main quantitative rating tool for structured credit and incorporates the latest criteria for corporate and abs portfolios.
- Version No. 2.1.0 - Release Date: December 2008 The new release includes additional functionality for analysing Structured Finance CDOs as described in the Criteria Report "Global Rating Criteria for Structured Finance CDOs", December 2008. The methodology also covers REIT and CReL assets.
- Version No. 1.1.10 - Release Date: July 2008 This version allows to analyse corporate CDOs in line with Fitchs Criteria described in the Report "Global Rating Criteria for Corporate CDOs", April 2008
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