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Risk Management

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Barring Bad Credit

Credit-risk identification is the goal of Berkeley, Calif.-based Barra's new Barra Credit product.

Credit-risk identification is the goal of Berkeley, Calif.-based Barra's new Barra Credit product. The solution, aimed at credit analysts and portfolio managers on the buy side, claims to recognize potential-credit default earlier and more accurately.

The solution operates as an integrated three-legged model of market-implied measures of risk. The first component, Barra Default Probabilities, examines equity-implied measures of default probability. Barra Implied Ratings, the second part, demonstrates the bond market's credit rating, comparable to agency ratings. Finally, Credit Derivatives identifies trends within the credit-default-swaps market.

While users may have had access to all of these views before, Tim Backshall, the director of Barra's global credit markets strategy, notes that this tool brings the three views to the same solution. "It gives you a holistic view," he adds.

In addition, Backshall notes that the product has the capability to account for some firms' "creative accounting," or erroneous data on financial statements. Barra Credit incorporates those possibilities into its models, he says. Backshall adds that the Web-based Barra Credit is not meant to replace other ratings systems or analysts, but instead act as a building block for other applications. Instrument complexity has increased, and the amount of companies a firm needs to track to maintain an accurate credit-risk perspective has expanded, he says. The product is currently available, and pricing is based on data sets and number of users.

www.barra.com/products/credit.aspx, 888.588.4567

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