Fitch Ratings announced last week the launch of its Nth-to-Default Model now available for those seeking a tool to evaluate risks related to Nth-to-Default trades. Nth-to-Default trades are synthetic transactions where a credit event is triggered upon the first, second, third or Nth reference entity to default in a portfolio, Fitch explained in its announcement.

Essentially, the Nth-to-Default Model can assess how a possible credit event related to one bond defaulting can affect other bonds defaulting in the same portfolio, whether within the same industry or across industries," said Richard Hrvatin, managing director in Fitch's credit products group. "Monte Carlo simulation is a convenient way to assess such risks when there is no finite solution," he said.

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