Fitch Solutions has launched Fitch Risk and Performance Platform, a new platform providing market-based credit risk analytics, credit default swap (CDS) pricing and fundamental ratings content. It is an extension of Fitch’s market implied ratings platform and incorporates new tools for quickly reviewing credit entity performance within a user’s portfolio.
According to the vendor, which is a division of the Fitch Group, the new platform provides an integrated view of credit market pricing and best-of-breed single-entity credit risk models. The platform took around 12 months to develop, explains Thomas Aubrey, managing director of Fitch Solutions, and clients provided valuable feedback during the development process.
Jonathan Di Giambattista, senior director of Fitch Solutions, says: “Fitch had consistently heard from market participants that, given the nature of the CDS marketplace, there is a tremendous amount of technical movement among CDS spreads making it difficult to get a good perspective of the current market sentiment of an entity’s risk level – this clouded the decision making capabilities of both risk and relative value analyses. The Fitch Risk and Performance Platform provides both a medium term and long term signal from the CDS market, as well as the ability to cross check the CDS market sentiment with those from the equity markets and Fitch Ratings.”
The difference between Fitch Solutions’ platform and what is already available in the market is essentially in the content, says Di Giambattista. “This platform is designed to give the front and middle office the content they need by providing CDS pricing on a ‘best curve’ basis, and also providing a CDS spread-implied risk measure that is truly predictive. Due to Fitch’s equity model, we have probabilities of default embedded in the platform that provides the equity market signal. When combined, the Fitch Risk and Performance Platform provides a comprehensive view of the credit and equity market perspectives on risk, making it valuable for risk management and relative value purposes.”
The platform covers nearly 27,000 entities on a daily basis, making the data challenges among the biggest to overcome, he explains. Fitch also provides CDS related information before 7am GMT everyday, which is useful for its European clients, but this is also part of the challenge, he adds. “From a content standpoint, keeping all of the data mapped and integrated is also a critical maintenance function to which we dedicate teams of people, in addition to our automated data QA processes.”
In terms of methodology, Fitch has had to apply significant quantitative researcher time to developing, validating and maintaining the models used to generate the value-added content, adds Di Giambattista. This research has paid off thus far, he continues, as the reaction to the platform has been positive and the market appears to appreciate the “thoughtfulness” of Fitch’s models. “Users have also told us that our Excel-based UI is the best such tool available in the market for its purpose.”
Fitch is currently in the process of converting users of its former Market Implied Ratings platform to the Fitch Risk and Performance Platform. “To date, the conversion process has been smooth and users are happy with the new content, particularly surrounding the portfolio information, such as the ability to compare value changes over user-defined time periods for each portfolio entity, creating custom filters and viewing portfolio averages, for example the average five year spread or average daily change in a five year spread,” he concludes.