DefaultRisk.com the web's biggest credit risk modeling resource. |  |
|
|
| The Correlation-Neutral Measure for Portfolio Credit by Kay Giesecke of Stanford University November 14, 2007 Abstract: We derive a formula for a Fourier transform of a counting process that describes the arrival of unpredictable events, and we show how this transform facilitates an analytical treatment of a range of valuation, hedging and risk management problems that arise in single name and portfolio credit risk. Example applications include reduced form pricing of credit sensitive securities referenced on single or multiple issuers, hedging of constituent risks, model estimation, and credit portfolio risk measures. Our results cover situations in which events feed back on future arrival and interest rates, i.e. situations with contagion and flight to quality phenomena. A complex-valued measure change neutralizes this feedback. Keywords: Counting process, point process, compensator, characteristic function, Fourier transform, Laplace transform, complex measure, credit derivative. Books Referenced in this Paper: (what is this?)
Download paper (225K PDF) 22 pages
[Home] [Credit Modeling Papers]  |
|
Please contact me with problems or suggestions. |
