Fitch Ratings has released an updated version of its Nth-to Default Model, which comes just a few months after the original model was made available for those seeking a tool to evaluate risks associated with Nth-to-Default trades. Version 1.1 of the Nth-to-Default Model includes an updated algorithm for generating random numbers that greatly reduces the run time, Fitch said in a release.
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. The Nth-to-Default Model can assess the risk tied to such trades. For example, the model can predict 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.