"The former Chief Executive Officers of Citigroup and Merrill Lynch certainly understand now that an increase in correlated defaults is bad for the equity holders," said Warren Sherman, Kamakura President and Chief Operating Officer, "but CDO market participants have long held the opposite view when it comes to the equity tranche of the âmini-bankâ called a CDO. This new study shows that an increase in correlated defaults can be either good or bad for the equity tranche. It is absolutely critical from a corporate governance and risk management point of view that the true risk of the CDO tranche owner is measured correctly. In the current environment, modeling techniques that restrict the user to a set of unrealistic assumptions pose a serious danger to both the institutions who own the CDO and to the analysts that employ them, as job losses all over Wall Street in recent weeks have proven. This paper shines a bright light on common practice and has huge implications for the way forward which produces maximum accuracy."