Our last two blogs on structured credit covered in detail the ever-evolving complexities involved in pricing structured instruments, especially during the pandemic. Luckily, these complexities can be managed with the introduction of automation to improve efficiency and transparency throughout the pricing process, thus leading to the generation of alpha. There are several areas within the pricing process that can be streamlined and automated as indicated below:
COVID-19 has drastically changed the world and its economy in unprecedented ways. With a specific focus on the financial industry, the pandemic has caused securitized credit instruments to face a much higher risk of credit downgrade and default. This risk is due to the decreased ability of the counterparty to honor payment obligations and to make matters worse given the current situation, lower valuations and changing credit ratings pose an additional challenge in the pricing process. Throughout this blog, we will explore a few aspects involved in the process of pricing structured credit instruments to help you navigate these uncertain times.