Featured Book Copula Methods in Finance by Umberto Cherubini, Elisa Luciano, and Walter Vecchiato, John Wiley & Sons, July 9, 2004, Hardcover, 310 pages
Summary: The Fitch CDS Implied Ratings (CDS-IR) model processes the collective marketplace view of firms' credit condition based on its current CDS pricing, financial information, region and industry. It then calculates and converts these into implied ratings.
The Fitch CDS-IR model is a proprietary and data intensive rating model that covers a global universe and refines market information into a model-based credit assessment. The principle output is a forward-looking credit assessment expressed in the traditional rating grade. The model's comprehensive scope, data-intensive foundation, and exhaustive validation testing ensure robust out-of-sample predictive power. CDS-IR rating outputs are useful with regard to absolute levels and relative changes across time.
Model calibration for the Fitch CDS-IR is based principally on The Fitch CDS Pricing Service data which goes back from present time to 1999 globally on a daily basis.
The Fitch CDS-IR model covers over 2,500 reference entities in 84 countries globally All industries are covered by this model, including Financials and Sovereigns. The model provides daily output of market implied credit ratings.
Testing and validation of Fitch CDS-IR includes: 1) in-sample Hit-Miss Matrices by region, 2) out-of-sample Forward Analysis to examine how well implied ratings forecast changes predict agency ratings, and 3) the Accuracy Ratio from CAP plots to gauge the ratings' ability to rank order obligors.
