Download Default Vector SME Model User Manual

www.derivativefitch.com
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Overview
The Derivative Fitch Default VECTOR SME model (VECTOR SME) is Derivative Fitch’s
main quantitative tool to evaluate credit risk in portfolios of assets referenced by Small and
Medium Enterprises (SME). The determination of default is formally based on a structural
form methodology, which holds that an asset defaults if the value of the asset falls below its
default threshold. The outputs of this model may then serve as inputs into cash flow models.
The main outputs of VECTOR SME are the Rating Default Rates (RDR), Rating Recovery
Rates (RRR), the Rating Loss Rates (RLR) and default timing information corresponding to
each rating level. The model outputs also include various portfolio statistics as well as the
portfolio’s default and loss distribution.
The model engine is a C++ compiled program embedded into a Microsoft Excel spreadsheet
which serves as the user interface and contains both inputs and outputs. The model can be
downloaded from Derivative Fitch’s website at www.derivativefitch.com. For a detailed
discussion of VECTOR SME and how it is used in Fitch’s overall analysis see “European
SME CDO Rating Criteria”, dated March, 2007, also available at www.derivativefitch.com.
This manual will begin with instructions for installing VECTOR SME followed by the
definition of the various terms used and instruction on how to populate the input sheets. The
outputs of the model are then described followed by a discussion of the various assumptions
made while evaluating the model. Finally, details about the underlying methodology are
covered in the appendix.