On Models of Stochastic Recovery for Base Correlation

Hui Li

MPRA Paper from University Library of Munich, Germany

Abstract: This paper discusses various ways to add correlated stochastic recovery to the base correlation framework for pricing CDOs. Several recent models are extended to more general framework. The pros and cons of these models for calibration to single name CDS and index CDO tranches are discussed. It is shown that negative forward recovery rate under fixed systematic factor appears in these models. This suggests that current static copula models of correlated default and recovery processes are inherently inconsistent.

Keywords: CDO; Gaussian Copula; Base Correlation; Stochastic Recovery; Correlated Loss Given Default (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2009-06
New Economics Papers: this item is included in nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/15750/1/MPRA_paper_15750.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/16272/1/MPRA_paper_16272.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/17894/2/MPRA_paper_17894.pdf revised version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:15750

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().