What Is Weighted Average Rating Factor (WARF)

The weighted average rating factor (WARF) is a measure that is used by credit rating companies to indicate the credit quality of a portfolio. This measure aggregates the credit ratings of the portfolio's holdings into a single rating. WARFs are most often calculated for collateralized debt obligations (CDOs).

Understanding ཧthe🧸 Weighted Average Rating Factor (WARF)

To calculate the weighted average rating factor on a CDO, the rating agencies must first determine a 澳洲幸运5开奖号码历史查询:credit rating for each instrument underlying the CDO. In the 澳洲幸运5开奖号码历史查询:Fitch Ratings taxonomy, for example, this rating can range from extremely high credit quality (AAA) to low quality (CCC) to default (D). This letter rating corresponds to a numerical rating factor, which in turn correspond to the 10-year probability of default. The WARF is determined by calculating the weighted average of these numerical factors. To calculate the weighted average, the notional balance of the asset is mu🍸ltiplied by the rating factor and then these values are summed. Th🍸is sum is then divided by the total notional balance of the portfolio.