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Record W2105231105 · doi:10.3905/jod.2012.20.1.080

Ratings Arbitrage and Structured Products

2012· article· en· W2105231105 on OpenAlex

Why this work is in the frame

A frame that forgets how it found something cannot be audited. These are the routes that admitted this work.

affAt least one author lists a Canadian institution in the pinned OpenAlex snapshot.

Bibliographic record

VenueThe Journal of Derivatives · 2012
Typearticle
Languageen
FieldEconomics, Econometrics and Finance
TopicCredit Risk and Financial Regulations
Canadian institutionsUniversity of Toronto
Fundersnot available
KeywordsIssuerArbitrageCredit ratingDiversification (marketing strategy)Credit derivativeCredit riskCredit default swapiTraxxSynthetic CDOBusinessStructured financeProbability of defaultPortfolioCredit default swap indexLoss given defaultActuarial scienceEconomicsFinancial economicsCredit enhancementCredit valuation adjustmentFinanceCredit referenceFinancial crisisCapital requirementMicroeconomics

Abstract

fetched live from OpenAlex

An apparent breakdown of the credit rating process for structured products is widely believed to have played a major role in the run-up and subsequent collapse of the market for mortgage-backed securities. In this article, Hull and White observe that the ratings criteria used by two of the ratings agencies (Standard and Poor’s and Fitch) are supposed to reflect the probability of default but not the possible severity of the investor’s loss in a default, which introduces anomalies into the rating process. For example, diversification of a credit portfolio across issuers with equal credit quality increases the chance of a default by one of them—thus lowering the rating on the portfolio—even though the loss is reduced if there is a default. The default-risk-only criterion is shown to fail the requirements for a risk measure to be “coherent,” which means that the structuring process allows for profitable credit arbitrage. <b>TOPICS:</b>Derivatives, MBS and residential mortgage loans, financial crises and financial market history

Fetched live from OpenAlex and de-inverted. Abstracts are not stored in this database: the inverted indexes are 8.6 GB of the frame’s 9.3 GB of text, and the host has 13 GB free.

Full frame distilled prediction

Teacher imitation

Not calibrated prevalence, not ground truth. Human validation pending. Learned from the 10,348 direct Codex labels and 10,348 direct Gemma labels. Candidate is the union of thresholded teacher heads; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels or direct frontier model labels.

metaresearch head score (Codex)0.001
metaresearch head score (Gemma)0.000
Version: codex-gemma-dda1882f352aValidation status: machine_predicted_unvalidated
Candidate categoriesnone
Consensus categoriesnone
DomainCandidate signal: none · Consensus signal: none
Study designCandidate signal: Observational · Consensus signal: none
GenreCandidate signal: Empirical · Consensus signal: Empirical
Teacher disagreement score0.481
Threshold uncertainty score0.177

Codex and Gemma teacher scores by category

CategoryCodexGemma
Metaresearch0.0010.000
Meta-epidemiology (narrow)0.0000.000
Meta-epidemiology (broad)0.0000.000
Bibliometrics0.0000.000
Science and technology studies0.0000.000
Scholarly communication0.0000.000
Open science0.0000.000
Research integrity0.0000.000
Insufficient payload (model declined to judge)0.0000.000

Machine scores (provisional)

The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.

Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.

Opus teacher head0.028
GPT teacher head0.221
Teacher spread0.194 · how far apart the two teachers sit on this one work
Validation statusscore_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from it