Open Source Credit Rating Agency: Difference between revisions
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=Description= | |||
Matthew Weinschenk: | |||
"Opening the Door to Transparent Ratings | |||
This week, PF2 Securities released the [http://www.publicsectorcredit.org/pscf.html Public Sector Credit Framework] (or PSCF) – powerful modeling software that outputs the probability of default for national, state, or local governments. | |||
Here’s how it works… | |||
First, the user sets a wide range of assumption for GDP growth, tax revenue, expenditures, population and inflation, to name a few. | |||
Second, they set what thresholds should be considered as a default. | |||
Finally, the software simulates thousands of outcomes using a mathematical model called a Monte-Carlo simulation to determine the probability of default. And, voila! You have the basis for a credit rating. | |||
Of course, every bank, investment firm and ratings agency has software like this. But the thing that makes PSCF different is that PF2 Securities released the software’s entire code to the public as open source. | |||
Using the open-source development model allows anyone to freely access, examine, improve and redistribute the software that PF2 has developed. This typically means that additional features and improvements in the code happen at a much faster rate than with closed source (or proprietary) software. | |||
But the point isn’t more efficient software development, nor is it for individual investors to start modeling default scenarios. It’s not even to give people an edge in the market. Instead, the real purpose of releasing the software as open source is to allow for transparent, honest comparisons between ratings. | |||
After all, the real crux of an accurate prediction is the method of analysis and economic assumptions made – precisely what S&P and Moody’s are keeping secret. | |||
What PSCF achieves – and what S&P and Moody’s prevent – is a common language, method and framework for discussing risk for investors and policy makers. | |||
So rather than accept the big firms’ rating as gospel, anyone can investigate scenarios based on their own ideas and predictions. | |||
PSCF is an important step toward transparency among the financial institutions that wield so much power (especially since the creator, Marc Joffe, is a former senior director at Moody’s)." | |||
Similar projects that describe how mortgage applications are approved or how federal allocations affect the budget would serve the public interest significantly." | |||
(http://www.wallstreetdaily.com/2012/05/08/are-we-witnessing-the-start-of-a-ratings-revolution-psc/) | |||
Revision as of 04:45, 23 May 2012
Description
Matthew Weinschenk:
"Opening the Door to Transparent Ratings
This week, PF2 Securities released the Public Sector Credit Framework (or PSCF) – powerful modeling software that outputs the probability of default for national, state, or local governments.
Here’s how it works…
First, the user sets a wide range of assumption for GDP growth, tax revenue, expenditures, population and inflation, to name a few.
Second, they set what thresholds should be considered as a default.
Finally, the software simulates thousands of outcomes using a mathematical model called a Monte-Carlo simulation to determine the probability of default. And, voila! You have the basis for a credit rating.
Of course, every bank, investment firm and ratings agency has software like this. But the thing that makes PSCF different is that PF2 Securities released the software’s entire code to the public as open source.
Using the open-source development model allows anyone to freely access, examine, improve and redistribute the software that PF2 has developed. This typically means that additional features and improvements in the code happen at a much faster rate than with closed source (or proprietary) software.
But the point isn’t more efficient software development, nor is it for individual investors to start modeling default scenarios. It’s not even to give people an edge in the market. Instead, the real purpose of releasing the software as open source is to allow for transparent, honest comparisons between ratings.
After all, the real crux of an accurate prediction is the method of analysis and economic assumptions made – precisely what S&P and Moody’s are keeping secret.
What PSCF achieves – and what S&P and Moody’s prevent – is a common language, method and framework for discussing risk for investors and policy makers.
So rather than accept the big firms’ rating as gospel, anyone can investigate scenarios based on their own ideas and predictions.
PSCF is an important step toward transparency among the financial institutions that wield so much power (especially since the creator, Marc Joffe, is a former senior director at Moody’s)."
Similar projects that describe how mortgage applications are approved or how federal allocations affect the budget would serve the public interest significantly." (http://www.wallstreetdaily.com/2012/05/08/are-we-witnessing-the-start-of-a-ratings-revolution-psc/)