JOINT DISTRIBUTIONS OF PORTFOLIO LOSSES AND EXOTIC PORTFOLIO PRODUCTS

Friedel Epple, Sam Morgan and Lutz Schloegl ()
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Friedel Epple: Lehman Brothers, 25 Bank Street, London E14 5LE, United Kingdom
Sam Morgan: Lehman Brothers, 25 Bank Street, London E14 5LE, United Kingdom
Lutz Schloegl: Lehman Brothers, 25 Bank Street, London E14 5LE, United Kingdom

International Journal of Theoretical and Applied Finance (IJTAF), 2007, vol. 10, issue 04, 733-748

Abstract: The pricing of exotic portfolio products, e.g. path-dependent CDO tranches, relies on the joint probability distribution of portfolio losses at different time horizons. We discuss a range of methods to construct the joint distribution in a way that is consistent with market prices of vanilla CDO tranches. As an example, we show how our loss-linking methods provide estimates for the breakeven spreads of forward-starting tranches. .

Keywords: CDOs; correlation modelling; path-dependent portfolio derivatives (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0219024907004354

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