Dynamic Modelling of Single-name Credits and CDO Tranches

DefaultRisk.com the web's biggest credit risk modeling resource.

Submit Your Paper

Post Your Résumé

For Recruiters

Today's Featured Book

The Volatility Surface: A Practitioner's Guide
by Jim, Wiley, (August 28, 2006), Hardcover, 179 pages

Training Discounted for DefaultRisk.com visitors only:

The Mathematics of Credit Derivatives: The Essential Credit Modelling and Pricing Companion
by Philipp J. Schönbucher,
WBS Training, August 2003, DVD / Interactive CD-ROM

Sponsor:
Shop at Amazon.com and support DefaultRisk.com

Dynamic Modelling of Single-name Credits and CDO Tranches

by Martin Baxter of Nomura International, plc

March 20, 2006

Abstract: This paper presents a new model of the evolution of credits within a basket. This structural model uses a Levy process to have dynamics which are intuitive, which capture the heavy tails of credit distributions, and which have a correlation structure that matches CDO market prices. For practical purposes, it is useful that the model is also tractable to implement.

JEL Classification: G13.

Keywords: Structural credit model, CDO pricing, Levy process.

Books Referenced in this Paper: (what is this?)