Credit Underlying Securities Pricing (CUSP)
CUSP ® is an analytical model that relates an issuer's capital structure, stock price, and equity option-implied volatility to credit risk.CUSP ® provides systematic monitoring of credit spread risk from forward-looking, market-based measures. The original model from 2000 has now been decommissioned, and the new one is namedCUSP 2007.
The new features of CUSP 2007 include the following:
- Coverage of around 800 issuers. It updates daily and is available over our Internet platform, LOCuS.
- New feature: CUSP 2007 both calibrates to and models the CDS curve. The debt of a firm is assumed to be perpetually and continually issued and repaid, so any maturity can be modeled.
- New feature: CUSP 2007 models banks and financials using the real capital structure (i.e., without artificial manipulation). It also allows senior and subordinated debt to be modeled consistently.
- Revised feature: The SWR (spread widening risk) measure is a spread volatility indicator using equity option volatility (cf. old CUSPSWR).
- Revised feature: The IRD (implied roll-down) is the predicted change in CDS spread, again using equity option volatility as an input (cf. old CUSPPWR).
- New feature: The equity vol-implied CDS curve, or the VIC for short, is a new concept, using equity option vol to indicate how steep the CDS curve should be.
- CUSP 2007 can be used to highlight where the value is in the capital structure, indicating whether investors should take a position on a firm through the debt or equity.
- CUSP 2007 employs Lévy processes (jump diffusions) to represent the evolution of a firm's value; these are essential to the model, and highly sophisticated mathematical and numerical techniques have been developed to make it work.
- CUSP 2007 also feeds into our PortfolioRisk+ calculator, thereby allowing the full mark-to-market (i.e., including default) risk to be calculated at the portfolio level and risk attribution to be performed. Unlike other systems, the model naturally incorporates the possibility of substantial spread widening.
For access to Credit Suisse's CUSP ® application, institutional investors should consult their Fixed Income Sales representatives. Please note that CUSP ® is distributed over Credit Suisse's LOCuS platform and is not available directly over BondHub or R&A. We are able to provide Excel-compatible daily data feeds to clients seeking to incorporate the CUSP signals into their portfolio management tools.
Employing CUSP 's forward-looking measures of spread risk, PortfolioRisk+, a full-distribution portfolio risk system, allows investors to optimize portfolio diversification as market conditions change. It is delivered in Excel.