scholarly journals Deriving the Dependence Structure of Portfolio Credit Derivatives using Evolutionary Algorithms

2006 ◽  
Author(s):  
Svenja Hager ◽  
Rainer Schoebel
Keyword(s):  
Evolutionary Algorithms ◽  
Credit Derivatives ◽  
Dependence Structure ◽  
Portfolio Credit Derivatives

ON DEFAULT CORRELATION AND PRICING OF COLLATERALIZED DEBT OBLIGATION BY COPULA FUNCTIONS

2006 ◽  
Vol 05 (03) ◽  
pp. 483-493 ◽  
Author(s):  
PING LI ◽  
HOUSHENG CHEN ◽  
XIAOTIE DENG ◽  
SHUNMING ZHANG
Keyword(s):  
Credit Derivatives ◽  
Copula Function ◽  
Dependence Structure ◽  
Default Correlation ◽  
Specific Kind ◽  
Copula Functions ◽  
Recovery Rates ◽  
Collateralized Debt Obligation ◽  
Collateralized Debt ◽  
Debt Obligation

Default correlation is the key point for the pricing of multi-name credit derivatives. In this paper, we apply copulas to characterize the dependence structure of defaults, determine the joint default distribution, and give the price for a specific kind of multi-name credit derivative — collateralized debt obligation (CDO). We also analyze two important factors influencing the pricing of multi-name credit derivatives, recovery rates and copula function. Finally, we apply Clayton copula, in a numerical example, to simulate default times taking specific underlying recovery rates and average recovery rates, then price the tranches of a given CDO and then analyze the results.

SIMULTANEOUS CALIBRATION TO A RANGE OF PORTFOLIO CREDIT DERIVATIVES WITH A DYNAMIC DISCRETE-TIME MULTI-STEP MARKOV LOSS MODEL

2009 ◽  
Vol 12 (05) ◽  
pp. 633-662 ◽  
Author(s):  
MICHAEL B. WALKER
Keyword(s):  
Linear Programming ◽  
Markov Model ◽  
Discrete Time ◽  
Credit Derivatives ◽  
Surface Model ◽  
Relevant Market ◽  
Market Prices ◽  
Credit Portfolio ◽  
Portfolio Credit Derivatives ◽  
Static Loss

This article describes a dynamic discrete-time multi-step Markov model for the losses experienced by a given credit portfolio, and develops a method for the simultaneous calibration of the model to all available relevant market prices (for CDO's, forward-start CDO's, options on CDO's, leveraged super-senior tranches with loss triggers, etc.) established on a given day. The implementation is via an efficient linear programming procedure, and examples are given. The approach represents an extension of previous work (Walker, 2005, 2006; Torresetti et al., 2006) on the static loss-surface model to a model containing the necessary underlying dynamics.

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