From Moody’s today:
Moody”s modifies new measures for structured finance
New York, December 3, 2008 — Moody”s Investors Service said today that, in response to additional feedback from investors, it is modifying the two supplemental measures to its structured finance ratings that it introduced earlier this year.
Moody’s is slightly modifying its terminology for one of the measures, the Assumption Volatility Score. It is also replacing the second measure, Loss Sensitivity Analysis, with a new measure, Parameter Sensitivity Analyses, in order to provide investors with more information on the relationship between an assigned rating and the model inputs that contributed to that rating.
Which is pretty good news: we now have a model risk rating. The clunkily-titled “Parameter Sensitivity Analyses” will hopefully give investors some indication as to just how reliable the model underlying the headline rating, is. At least, that’s the theory.
Moody’s says the development of its Parameter Sensitivity Analyses is a response to investor requests for additional information about the potential sensitivity of Moody”s ratings to the assumptions made during the rating process. Parameter Sensitivities provide a quantitative calculation of how the initial rating of a security may vary if key assumptions changed.
“Parameter Sensitivities are not intended to measure how the rating of the security might migrate over time,” said Structured Finance Chief Credit Officer Nicolas Weill. “Rather, they are designed to show how the initial rating might change if key assumptions were altered.”
Moody’s gives a slightly more detailed exposition of its two new rating accoutrements here.