Obligors and Asset Correlation

 

There are essentially three ways you can define Obligors and their Correlations:

1. Manually: You define Obligors then you assign correlatiosn manually or through copy paste.
2. On/The/Fly: You can Import Correlation Data from a file or Copy and Paste.
   You can edit or add correlation column labels that are used as Obligor Names. You then assign your parties to the obligors. If zou do not provide a credit curve o CreditCurve is defined and credit-default-curves.
3. Automated: You define obligors and obligor Correlations from your favorite spreadsheet and inject data into the Realm. br>

 

Risksvr™ interprets Obligors differently depending on the data you provide:

• As-Is: 
  You define Obligors as groups of Parties. See Obligors
• Generated From Counterpartiesy
  Directly: You can setup Risksvr™ to Consider Obligors as Parties. Actually it's the opposite: Parties are assumed to be obligors.
  Weights are usually provided as the Obligors Exposure percentage to country industry correlations.  
  If no weights are provided, you can produce "pseudo-weights" from Risk Factor Weight Exposures.
•  is your portfolios  Automatic Correlation from On-the-Fly Generation:
  You can request the Engine to Generate Obligors on the fly form Counterparty Information, 
  If you are running Defaults with  asset/obligor Correlations, the Risksvr™ can generate the Asset Exposure Weights by computing the Risk Factor Percentage weight Exposure of each Obligor.
• Import:
• Through Counterparty Import:
  If you provide Counterparties with Obligor Identifiers or Group Names but you do not provide Obligors Themselves, Risksvr™ will generate Groups automatically. It will also Generate Credit Curve Names according to the Rating Ranks associated to the Parties. (if there are multiple Rating Ranks it will create a Basket Name and a Proxy curve)
• Through Asset/Obligor Correlation import:
  As with all other Credit Related Data, you can import your own terms and conditions either by Uploading a File (CSV, name value pair or  XML) or Pasting the Data into the Import File window.
  

Obligor-Counterparty One to Many

An obligor can thus be seen as a Group of One or More Counterparties. This architecture helps to make Correlation Definition and computation easier in some instances.

The Engine can convert Counterparties to Obligors automatically. 
In this setting, Obligors can either be generated for Each Counterparty or for Each Senior Counterparty. 
If Senior Counterparties are selected, then Junior Counterparties (Subsidiaries) are included in the Group. Although this can make correlation easier to define it is not recommended to users who want to capture Industry Sector/Country Weightings.

 

Create New Obligor Name Full Name Credit Curve AAA AA A BBB HY Specific Risk

 

Difference between Obligors and Party or Accounts

An obligor represents a firm that issued the underlying asset.
Not to be confused with Counterparties. The Credit Risk of the counterparty stems from trades you have carried out directly with the party.
The more profitable these trades become the higher the loss in case of default (provided Collateral is not sufficient and netting does not compensate with other positions)
Obligor credit risk stems from securities issued by the obligor that were (most often) purchased from another counterparty.
There is indeed no collateral or netting scheme. If the obligor defaults he will no longer pay coupons, dividends or reimburse capital and so the value of your asset will most likely end up being worth at best the value recovered once the company is liquidated.