The dynamic nature of credit determines the broad trajectory of an economy, which in turn, impacts the behaviour of assets through time. This includes asset values appearing to behave in a random way, demonstrating periods of long term memory and also periods of chaotic like behaviour. This has substantial implications for the way in which credit portfolios are managed, which for the most part do not assume that asset behaviour is driven by deterministic endogenous macroeconomic effects.
Our credit-based macroeconomic model estimates the extent of implied systematic risk by country based on the cumulative effect of credit disequilibrium. This approach provides more insight into the nature of unexpected losses as the business cycle shifts, enhancing the risk management of credit portfolios.
We focus on the valuation of complex structures that have a significant feedback loop on the economy, are highly illiquid and remain in their early stage of development. We are currently concentrating on valuing Contingent Capital securities, Small and Medium Sized Enterprises (SME) CDO’s and Trade Finance CDO’s.