The rating agencies have come under criticism for assigning AAA ratings to the senior tranches of the ABSs and ABS CDOs that were created from subprime mortgages. This presentation will consider whether the criteria used by rating agencies involved appropriate measures of credit quality and whether the criteria were applied appropriately. It will propose a no-arbitrage condition that a credit quality measure should satisfy and examine whether the measures that were used satisfy this condition. It will also use one-and two-factor copula models to examine whether the AAA ratings assigned by rating agencies were ex ante reasonable. It will reach conclusions on the future of structured finance.

Welcome address: Prof. Giorgio Di Giorgio, Dean, School of Economics and Management, Università LUISS Guido Carli.

Prof. John C. Hull is the Maple Financial Group Professor of Derivatives and Risk Management in the Joseph L. Rotman School of Management at the University of Toronto. He is an internationally recognized authority on financial engineering and also the author of (among other works) three books on financial derivatives and risk management that have become market practitioners' standard texts: "Options, Futures, and Other Derivatives" (now in its 7th edition), "Fundamentals of Futures and Options Markets" (also in its 7th ed.) and "Risk Management and Financial Institutions" (2nd ed.). His books have been translated into several languages (including German, French, Italian, Polish, Korean, Japanese, Mandarin, Cantonese, Spanish, Portuguese, and Singaporean) and are widely used in trading rooms throughout the world. Recently his research has focused on understanding the credit crisis, credit ratings, credit derivatives, credit risk, market risk, the valuation of interest rate derivatives, numerical procedures for valuing derivatives, and employee stock options. He has acted as consultant for the development of models for valuing, hedging, and managing non-standard derivatives (clients have included major financial institutions, their external auditors, and software companies in North America, Europe, Japan, and Australia). He also acted as expert testifier in cases involving disputes about derivatives (clients have included major law firms in the U.S., the U.K., and Canada). Prof. Hull is the founder and current director of the Bonham Center for Finance at the Rotman School. He has won many teaching awards and was voted Financial Engineer of the Year in 1999 by the International Association of Financial Engineers. He was, with Alan White, one of the winners of the Nikko-LOR research competition for his work on the Hull-White interest rate model. In 2002, he was included by the magazine Risk in its Hall of Fame as one of the 50 people who have “made a profound contribution to the field of risk management”. In 2006, in the ICBI Global Derivatives industry survey, he has been voted the academic who has made the most contribution to the derivatives industry over the previous five years.In addition to the University of Toronto, Prof. Hull has taught at New York University, York University, University of British Columbia, Cranfield University, and London Business School. He is currently an Associate Editor of ten academic journals (the Journal of Derivatives, Applied Mathematical Finance, the Review of Derivatives Research, the Journal of Derivatives and Hedge Funds, the Canadian Journal of Administrative Studies, the Journal of Risk, the Journal of Bond Trading and Management, the Journal of Credit Risk, the Journal of Derivatives Accounting, the Journal of Risk Management in Financial Institutions).

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