Tuesday, July 15, 2008

A good example of a highly transparent model

(S&P's Vickie Tillman in the FT) Standard & Poor's has long been committed to openness, transparency and supporting the effective functioning of the capital markets. That is why we were taken aback by Arturo Cifuentes' incorrect claim that CDO Evaluator, S&P's credit model for collateralised debt obligations, is a "black box"("How to avoid a ratings fiasco: just say No to black boxes", Insight, July 9).

If Mr Cifuentes were to visit our public website, he could download the model for nothing and use it. It comes with a user manual, as well as disclosure of the assumptions (on probability of default of the assets, recovery potential, correlation, and so on) and of the formulas that drive the model. Scores of financial institutions and investors around the world use the model in order to help assess how changes in underlying collateral and assumptions might impact on our ratings.

Standard & Poor's will continue to work with regulators, legislators and market participants around the world to build greater confidence in the ratings process, including making our methodologies and models more easily accessible to the market. CDO Evaluator is a good example of a highly transparent model that investors can use to see the factors and analysis behind our ratings.

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