With correlation being the risk of the moment in credit derivative markets, UBS Warburg CDO researcher Douglas Lucas takes the argument one step further and theorizes that the result of the heightened correlation risk will be an increase in a relatively unknown derivative product. 

In the most recent CDO Insight Lucas asks: "Does a 10% probability of default mean that one out of 10 credits is going to default, or that 10% of the time all credits are going to default?" Given the deterioration in CDO collateral over the past two years, it may be better to prepare for the latter. 

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