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Professor Damiano Brigo from the Department of Mathematics has been working through Imperial Consultants to assist Capco in developing the CEPIX Index, which provides country-by-country analysis and profiling of the propensity of Eurozone members to default on national debt.
Peter Schurau, Capco European CEO, says:
“Potential national debt default remains a front of mind issue in the Eurozone, as recent events have underlined yet again. The Capco CEPIX Index will provide practitioners, analysts and commentators with insightful information around the challenging questions that underlie national debt, as well as stimulating discussion about the current crisis.”
Professor Brigo, who is also Director of the Capco Research Institute and Editor of Capco’s Journal of Financial Transformation, explains:
“At the technical level, CEPIX bridges market implied probabilities of individual country national debt default and those published by rating agencies. We modelled the indicator to avoid the occasional sharp changes created by discrete rating agency updates, while smoothing sometimes unnecessarily high volatility of market implied default risks stemming from risk premia.”
Capco intend the CEPIX Index to provide indicative data to financial institutions and governments, allowing them to prepare for national debt deterioration or default and better manage the associated risk.
Going forward, Professor Brigo’s hope for the new indicator is that:
“CEPIX will start a discussion that leads to deeper insights into the European crisis and helps define a reliable threshold for determining the extreme yet still possible scenario of ‘Euro Breakup’”.
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