Debt Correlations in the Wake of the Financial Crisis: What are Appropriate Default Correlations for Structured Products?

2014 ◽  
Author(s):  
John M. Griffin ◽  
Jordan Nickerson
Keyword(s):  
Financial Crisis ◽  
Structured Products

scholarly journals Credit rating agencies and moral hazard

2011 ◽  
Vol 58 (2) ◽  
pp. 219-227 ◽  
Author(s):  
Milos Bozovic ◽  
Branko Urosevic ◽  
Bosko Zivkovic
Keyword(s):  
Financial Crisis ◽  
Moral Hazard ◽  
Credit Risk ◽  
Credit Rating ◽  
Global Financial Crisis ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Structured Products ◽  
The Global Financial Crisis ◽  
Financial Securities

The failure of credit rating agencies to properly assess risks of complex financial securities was instrumental in setting off the global financial crisis. This paper studies the incentives of companies and rating agencies and argues that the way the current rating market is organized may provide agencies with intrinsic disincentives to accurately report credit risk of securities they rate. Informational inefficiency is only enhanced when rating agencies function as an oligopoly or when they rate structured products. We discuss possible market and regulatory solutions to these problems.

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