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CDOs

Rating the Tranches

The ratings agencies each have models for evaluating CDOs

See their web sites for further details

The key parameters for rating are

Quality of underlying assets

Actual ratings apply BUT

If there is no rating for a particular asset going into a CDO

»

The rating agency may apply a “shadow” rating

»

Or may rely on mapping the originators internal rating

Diversification of underlying assets

Moody’s and S&P rely on geographical and industry categories

Fitch looks to equity correlations

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